US department of Justice Probe Verisign Over $135m .web Auction

The unusual auction of the internet top level domain (TLD) .web has attracted an investigation from the United States department of Justice. The company, Verisign, who bought the .web domain also verified this in a conference.

The company’s CEO, Jim Bidzos disclosed this during Verisign’s quarterly earnings conference call, on Thursday February 9, 2016. While addressing investors, Jim Bidzos noted that on January 18 the registry had received a civil investigative demand (CID) from the antitrust division of the DoJ, which requested “certain information relating to Verisign’s potential operation of the .web gTLD.”

Dot web legal issues

However, Bidzos did not reveal more information surrounding the probe, apart from saying that the company had already given out some details to the DoJ. He also noted that they are fully cooperating with the antitrust department and they are going forward.

The CEO further stated that however warned that any information that goes beyond what he already said is a mere speculation and should not be taken seriously. When he was asked about the CID, Baldos clearly stated that in his view, the “industry is extremely competitive.”

When the .web was auctioned to Verisign in July 2016, the huge amount of money involved ($135M) attracted a lot of attentions. The sales skyrocketed thrice the previous record price for a top-level domain, and even seven times higher than the average auction price for a new internet extension.

During its Securities and Exchange Commission quarterly report, in 2016, quoted the company to have said that “subsequent to June 30, 2016, the Company incurred a commitment to pay approximately $130.0 million for the future assignment of contractual rights, which are subject to third-party consent. The payment is expected to occur during the third quarter of 2016.

What made the whole scenario even more suspicious is that the company Nu Dot Co, who won the bidding is not very popular, in addition, it has been accused of being a shell company for a larger corporate entity. Speculations at that time were that the company was operating or biding under proxy to favor the other company sponsoring it, whose identity was not disclosed.

Additionally, seven companies bided for the .web TLDS, all of them well-known companies in the internet infrastructure field. However, out of the seven companies only Nu Dot Co refused to take part in a private auction. If they had opted for the private option, the money would have been shared between the companies rather, but for the public auction the money would be given to ICANN, who is the domain name overseer.

History of TLD Controversy

This is not the first time Verisign is entangled in such controversy. On June 5 2009 the 9th Circuit partly reversed and remanded antitrust claims in relation to the operation of .net and .com extensions in a case brought against it and the Internet Corporation for Assigned Names and Numbers (ICANN).

Though a district court had granted VeriSign’s motion to dismiss the claims, the 9th Circuit thought otherwise by holding that the plaintiff adequately stated .com related conspiracy and claims of monopolization. The plaintiff had adequately accused VeriSign and ICANN of conspiring to eliminate competition in the bidding for future contracts to administer the .com registry. They had further noted that both conspired to set artificially high prices for VeriSign’s services. The plaintiff also accused VeriSign of monopolizing or attempting to monopolize the .com registration market by coercing ICANN to agree with it through various improper means.

ICANN Headquarters, Playa Vista, LA – photo credit: Wikimedia Commons

Something fishy going on?

When the speculation gained more intensity, certain rival companies started suspecting something fishy. One of the companies who smelt a rat, applied through ICANN’s appeal system to halt the auction until more they are able to get more information about who was behind Nu Dot Co. ICANN hurriedly declined the request in record time. On a normal day, such request typically takes ICANN more than a month to review and decide upon – but it only took four days to make such decision.

Donuts, which is the rival company, in an attempt to get a temporary restriction order on the auction, sued ICANN. Donuts in the suit claimed that that ICANN had failed to identify who was really in charge of the company. In response to the suit senior executives of Nu Dot Co and ICANN signed affidavits where they claimed that only the people listed as being Nu Dot Co executives were in charge of the company.

Court refused to grant the restraining order, and the auction reached a record high but in less than a week, Verisign accepted that it was behind the company. They confirmed this in a SEC filing that it had acquired the rights to a new top-level domain for $130m.

Apart from the fact that the sales looked suspicious, especially the way ICANN actively pushed the auction to move ahead, the money paid and the unusual way it was acquired has raised concerns of eliminating competition.

Question of Dominance

Verisign already dominates the market for internet domains with 141 million names under its operation of .com and .net internet registry. This makes it ten times larger than its biggest competitor.

According to industry experts, the $135m purchase price for .web, in addition with the increasingly competitive market, the Verisign may unlikely turn a profit.

Competitors are of the opinion that “web” is one of the few names that could compete directly with the dominant “.com” internet extension.

They are therefore accusing Verisign of abusing its dominant market position by paying several times the commercial value of the .web name so they would limit competition.

What Lies ahead for the .Web and Verisign?

According to what Bidzos had earlier said, the DoJ investigations, appears to focus on what Verisign intends to do with .web once it is live.

Since .web would be the new gTLD best positioned as an alternative to .com, raking millions annually for Verisign, it would make perfect sense for Verisign to flush the $135 million and bury .web, instead of having a viable competitor on the market.

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