Judge Rules in Domain Name
Registration Suit

(April 10, 1998.)  U.S. District Court Judge Thomas Hogan ruled yesterday that fees collected by Network Solutions, Inc. for Internet infrastructure improvements constitute an illegal tax. Otherwise, Hogan dismissed the remaining nine counts of the ten count Complaint.  Plaintiffs had also alleged that NSI was an illegal monopoly under the Sherman Act.

"We are very pleased with this decision as it relates to Network Solutions," said NSI CEO Gabe Battista in a press release. "This decision amounts to business as usual for Network Solutions by affirming that our position as the exclusive registrar of domain names in .com, .net, .org and .edu is legally constituted and that NSI can charge a market rate for providing its services. The decision is also a clear statement that Network Solutions can continue to provide a stabilizing influence on the ever growing Internet."

Investors were pleased too.  NSI's stock price rose 10% by the end of the day.   Domain name registrants also had a reason to celebrate.  They may get some of their registration and renewal fees back.

Related Story: House Holds Hearing on Domain Name System, 4/1/98.

The plaintiffs, six domain name registrants, filed suit on October 16, 1997, in the U.S. District Court for the District of Columbia, against NSI and the National Science Foundation.  The NSF is an agency of the federal government which oversees the domain name system.  NSI is a private company (ticker NSOL) which has an exclusive contract with the NSF to register names with the most popular top level domains (TLDs), .com, .org, .edu, and .net.

Plaintiffs, who are represented by the law firm of  Bode & Beckman, seek class action status to represent all domain name registrants.  The Court has not yet ruled on the request for class action status, or otherwise decided what will be done with the money in the fund.  At issue is who will get the approximately $50 Million.

Illegal Tax

Some of the fees collected by NSI were for a fund to improve Internet infrastructure.   However, Congress had not passed a tax bill to that effect.

"Congress may have intended to grant NSF the authority to collect the assessment, but it has not yet done so," Judge Hogan ruled.  "It still retains the power to ratify the collection; even at this late date," he added. "However, if it wishes to effect such a ratification and permit NSF to use the Intellectual Infrastructure Fund, Congress must pass legislation that more explicitly conveys its intentions."

Judge Hogan had already issued an injunction in February 1998, barring NSI from spending any of the money in the fund, and NSI recently stop collected fees for the fund.

Monopoly Allegations

The plaintiffs had alleged that the NSF contract giving NSI authority to act as exclusive registrar of second level domain names under the top level domains .com, .net, .org, and .edu constituted an illegal monopoly under the Sherman Antitrust Act.   Judge Hogan rejected this claim.

Regardless of the decision of the Court, NSI's role in the domain name system is likely to change significantly in the near future, as the government seeks to privatize several aspects of the system.  However, how these privatization plans are actually carried out is a hotly debated matter.

Other Resources


Network Solutions, Inc., Press Release
April 9, 1998

Challenge to Network Solutions' Role as Domain Name Registrar Dismissed in Federal Court Decision

Ruling Supports Collection of Fees for Registration Services

Herndon, Va., April 9, 1998 - Network Solutions, Inc. (NASDAQ: NSOL) today welcomed the decision by the Honorable Thomas F. Hogan, U.S. District Court Judge in the United States District Court for the District of Columbia, affirming Network Solutions' role to provide domain name registration services and collect fees for such services by dismissing nine of ten counts of the class action lawsuit filed by William Thomas, et al., against the National Science Foundation and Network Solutions (NSI).

"We are very pleased with this decision as it relates to Network Solutions," said Gabe Battista, Chief Executive Officer of Network Solutions, Inc. "This decision amounts to business as usual for Network Solutions by affirming that our position as the exclusive registrar of domain names in .com, .net, .org and .edu is legally constituted and that NSI can charge a market rate for providing its services. The decision is also a clear statement that Network Solutions can continue to provide a stabilizing influence on the ever growing Internet."

The lawsuit, filed in October 1997, named the National Science Foundation and Network Solutions as defendants alleging that the National Science Foundation lacked authority to permit Network Solutions to charge for Internet registration services, and to set aside 30 percent of all fees for the preservation and enhancement of the Internet's infrastructure. The suit further charged that the National Science Foundation had created an illegal monopoly in Internet registration services and that Network Solutions had illegally precluded competition.

The single count not dismissed by Judge Hogan involves the Infrastructure Fund portion of the fee which will have no impact on Network Solutions' revenue and earnings, since it was set aside in a separate account and was never counted as part of NSI's revenue. The Infrastructure Fund was set aside for the preservation and enhancement of the Internet and represented 30 percent of domain name registration and renewal fees. At issue is the government's right to use the fund. Judge Hogan reserved judgment on the issue of potential damages or other appropriate relief with regard to the Infrastructure Fund until a further court ruling. Judge Hogan also recognized that Congress still retains the power to ratify the Infrastructure Fund by legislative action.

In response to the Department of Commerce's draft paper, "A Proposal to Improve Technical Management of Internet Names and Addresses," the National Science Foundation amended NSI's cooperative agreement to eliminate the Infrastructure Fund portion of fees for all new registrations and renewal anniversaries on or after April 1, 1998.  Founded in 1979, Network Solutions, Inc. (Nasdaq:NSOL) is a publicly traded company that registers Internet names ending in .com, .net, .org, and .edu pursuant to a cooperative agreement with the National Science Foundation. NSI also provides enterprise network consulting services, focusing on network engineering, network security and network management solutions for commercial customers. For more information, see www.netsol.com or www.worldnic.com web sites.