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NSI passes antitrust test, sort of

A federal appeals court hands Network Solutions another victory, dismissing charges the registrar violated antitrust laws and overcharged for domain names.

A federal appeals court today handed Network Solutions another legal victory, dismissing charges the registrar violated antitrust laws and overcharged customers for domain names.

Despite the victory, however, the unanimous opinion, issued by a panel from the U.S. Court of Appeals for the District of Columbia, See Don Telage Newsmakercould threaten a series of earlier decisions insulating NSI from antitrust actions.

Today's decision also ruled that Congress acted within Constitutional limits when it collected more than $39 million in taxes to pay for upkeep of the Internet. After the lower-court judge hearing the case ruled the tax was unconstitutional, critics called for the funds--totaling well more than $50 million with interest--to be returned to domain name owners.

The decision stems from a suit a group of domain name owners brought against NSI and the National Science Foundation, which formerly oversaw administration of the Internet's technical underpinnings.

The suit alleged that the fees NSI charged for domain names was unconstitutional and violated antitrust laws and other statutes. In April 1998 a federal judge in Washington agreed with the plaintiffs that the tax was unconstitutional but threw out the remaining claims. The suit was later dismissed entirely after Congress passed legislation designed to make the taxes pass constitutional muster.

Today's decision affirmed the dismissal of the suit in its entirety, soundly rejecting the registrants' claims that Congress erred a second time when it passed the 1998 legislation.

"We perceive no reason--registrants have offered none--why such legislation would not have been within Congress's Constitutional power," Judge A. Raymond Randolph wrote for the court.

Randolph, joined by Judges Judith Rogers and Merrick Garland, went on to affirm the lower court's dismissal of antitrust charges against NSI, ruling that the plaintiffs in the case lacked standing to bring an antitrust lawsuit against NSI. Under antitrust guidelines, plaintiffs must be competitors of the defendant, the court said.

NSI is clearly savoring the victory, which comes on the heels of favorable decisions in at least two other antitrust cases.

"We are extremely pleased with this well-reasoned decision as it relates to both Network Solutions and the National Science Foundation," NSI's chairman and acting chief executive officer Michael A. Daniels said in a statement. "This lays to rest important questions concerning the services that Network Solutions performs for the Internet."

Yesterday, a federal court in Indianapolis dismissed antitrust claims against NSI, holding that immunity provisions in antitrust laws clearly applied to "private entities acting pursuant to agreements with such federal agencies." A federal judge in New York City in March dismissed a separate lawsuit filed by PG Media on the same grounds.

But in a passage that could threaten those earlier rulings, the panel today questioned whether the so-called federal instrumentality doctrine insulating NSI from those suits in fact applied to the company's relationship with the U.S. government.

"It is not obvious to us...that a private contractor automatically shares the federal agency's immunity simply because the contractor's allegedly anti-competitive conduct occurred--as NSI puts it and some courts suggest--'pursuant' to a government contract," the panel wrote. "A contractor might be free to perform the contract in any number of ways, only one of which is anti-competive."

The court left the question unanswered because it had dismissed the charges on other grounds.

The court also affirmed NSI's right to charge fees for domain names that are above the cost of providing them. The holding rejected the plaintiffs' argument that NSI's arrangement with the NSF violates laws that prohibit federal agencies from farming out statutory duties.

"Simply because NSF might have been able to perform domain name registration does not transform this activity into a government service or thing of value," the panel ruled. "A recent and novel function such as domain name registration hardly strikes us as a 'quintessential' government service, as registrants suppose."

Until recently, NSI held sole authority to register domain names ending in ".com," ".net," and ".org," which account for between 50 percent and 75 percent of the Internet's addresses. NSI, however, still maintains the directory at the heart of the Net's domain name system and is responsible for other duties that are essential to the running of the Internet.

Despite the introduction of new registrars, legal challenges to NSI continue. PG Media is appealing the dismissal of its suit, and the Justice Department recently refocused a two-year investigation of NSI to include its control of the Net databases.