Donuts Sues ICANN to Delay .web gTLD Auction
Domain name registry Donuts filed a lawsuit Friday against ICANN seeking a temporary halt to the scheduled Wednesday public auction of the .web generic top-level domain (gTLD) and $10 million in damages. The lawsuit (in Pacer), filed via Donuts’ Ruby Glen subsidiary in U.S. District Court in Los Angeles, also seeks a declaratory ruling that would invalidate the anti-lawsuit covenant placed in all gTLD applications. Donuts claims ICANN breached both its contract with Donuts signed when the registry filed in May 2012 to contend for the .web gTLD and the accompanying covenant of good faith and fair dealing. The registry claims ICANN’s .web application process has allowed unfair competition practices, and ICANN was negligent in not exercising due diligence in investigating what Donuts claims are discrepancies in rival .web applicant Nu Dot Co’s disclosures about its governance structure.
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Nu Dot Co parent company Straat Investments is the only .web applicant of the seven current applicants that refused to resolve the application process via a private auction, necessitating a public auction of last resort. Google and Radix are among the other .web applicants. A public auction ensures ICANN “would be the sole beneficiary of the multi-million dollar proceeds” from the .web auction, Donuts said in its lawsuit. Private auctions typically result in large monetary settlements to the losing applicants for a gTLD, a domain names industry executive told us. Though the .web auction is likely to be a “big auction” within the gTLD space because .web “could be a competitive threat” to the .com TLD, any proceeds ICANN would receive from a public auction can’t be used for ICANN’s own operations, the executive said. The Cross-Community Working Group on New gTLD Auction Proceeds is deciding how funds from the gTLD auctions will be spent. An ICANN spokesman referred us to a Friday statement on ICANN’s decision to proceed with the Wednesday auction.
ICANN has “materially breached” the contract it signed with Donuts in 2012 by “failing to thoroughly investigate the issues raised” in an email from Straat Managing Director Jose Ignacio Rasco that indicated Nu Dot Co’s board had added “several” additional directors beyond those listed in the company’s application, and that controlling interest in Nu Dot Co may therefore have been sold or otherwise transferred to a larger entity without filing a new application, Donuts said. ICANN was also negligent and in breach of contract by “refusing to postpone” the .web auction “to allow for a full and transparent investigation into the apparent discrepancies” in Nu Dot Co’s application. Straat didn’t comment.
ICANN denied a joint Donuts-Radix request for reconsideration last week that asked ICANN to demand a new application from Nu Dot Co listing the identities of the applicant’s current directors, citing statements from Nu Dot Co that indicated there was no basis for either requesting a new application or postponing the .web auction. Donuts said it also formally raised its concerns about the Nu Dot Co application to the ICANN ombudsman’s office in late June, as did Radix and rival .web applicant Schlund Technologies. Donuts “would not have paid the $185,000 mandatory application fee or spent time and other resources absent” ICANN’s commitment to its contract, the registry said.
Donuts faces a “fairly high bar” for proving to the district court that a temporary restraining order is needed to halt the Wednesday auction, but the registry “has a fair chance of getting it,” said internet lawyer Greg Shatan of McCarter & English in an interview. “Those orders are designed for just these kinds of emergency situations.” ICANN said in a Monday filing (in Pacer) it intends to oppose the TRO application. Donuts’ claims bring up fundamental issues with ICANN’s commitment to transparency and accountability, as the entire gTLD process relies on “knowing who you’re dealing with,” Shatan told us. “This points out issues with how gTLD applicants are vetted and how ICANN monitors them throughout the process. The bottom line is this case may show” areas of the gTLD application process that still need fixing. If Donuts’ claims are proven true, “I don’t think ICANN did this purposefully in order to order a last-chance auction,” he said. “But they forced Donuts into filing this lawsuit by not postponing the auction.”
Donuts’ lawsuit could be precedential if the district court rules ICANN’s anti-lawsuit covenant is unenforceable, said Phil Corwin, principal of e-commerce and IP law consultancy Virtualaw. The anti-lawsuit covenant is also a factor in DotConnectAfrica Trust’s ongoing lawsuit against ICANN in the Los Angeles federal court over ICANN’s delegation of the .africa TLD to the ZA Central Registry (see 1604140056 and 1604150065). If Donuts prevails on the anti-lawsuit covenant issue, “that could potentially open the floodgates” for other TLD registries and applicants to sue ICANN over myriad issues, Corwin said.