United States Court of Appeals
for the Second Circuit
Network Solutions, Inc. and
National Science Foundation,
On Appeal from the United States District Court
for the Southern District of New York
Brief for Appellant
Glenn B. Manishin
Stephanie A. Joyce
Blumenfeld & Cohen
1615 M Street, N.W., Suite 700
Washington, D.C. 20036
Attorneys for Appellant Name.Space, Inc.
Corporate Disclosure Statement
Appellant Name.Space, Inc. ("Name.Space") is a privately-held Delaware corporation having no parent or subsidiary companies. Name.Space was formerly incorporated under the name pgMedia, Inc.
TABLE OF CONTENTS
CORPORATE DISCLOSURE STATEMENT i
TABLE OF AUTHORITIES ii
JURISDICTIONAL STATEMENT 1
STATEMENT OF ISSUES 1
STATEMENT OF THE CASE 1
STATEMENT OF FACTS 3
SUMMARY OF THE ARGUMENT 16
I. THE NSF CONTRACT ACCORDS NSI NEITHER EXPRESS NOR IMPLIED IMMUNITY FROM ANTITRUST LIABILITY 19
A. Without Express Congressional Power To Immunize Private
Conduct, The Purported "Public Purpose" of The Cooperative Agreement is Immaterial To Sherman Act Immunity 20
B. The District Court Improperly Extended the Federal Instrumentality Doctrine To Immunize Not Only the Contract With the Government, But All of The Private Defendants Conduct Directed Against Competitors 26
C. As The D.C. Circuit Has Emphasized, NSI Is Not Immune Under the Federal Instrumentality Doctrine Merely Because It Acted "Pursuant To" the Cooperative Agreement 31
II. THE DISTRICT COURT INCORRECTLY HELD THAT DOMAIN NAMES ARE NOT EXPRESSIVE SPEECH ENTITLED TO CONSTITUTIONAL PROTECTION 34
TABLE OF AUTHORITIES
Anderson v. Liberty Lobby, Inc., 277 U.S. 242 (1986) 38
Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985) 36 n.21
Beverly d/b/a PDS v. Network Solutions, Inc., C-98-0337-VRW
(N.D. Cal. filed June 12, 1998) 33 n.18, 36
California v. FPC, 369 U.S. 482 (1962) 25
Champaign-Urbana News Agency, Inc. v. J.L. Cummins News Co.,
632 F.2d 680, (7th Cir. 1980) 33 n.18, 34 & n.19
Clark v. Community for Creative Non-Violence,
468 U.S. 288, 293 n.5 (1984) 41, 44 n.30
Consumers Union v. Rogers, 352 F. Supp. 1319, 1323 (D.D.C. 1973) 25 n.16
Eugene Dietzgen Corp. v. FTC, 142 F.2d 321, 329 (7th Cir.), cert. denied, 323 U.S. 730 (1944) 25 n.16
Frisby v. Schultz, 487 U.S. 474, 483, 488 (1988) 46 n.31
Gordon v. New York Stock Exchange, 422 U.S. 659 (1975) 25
IT&E Overseas, Inc. v. RCA Global Communications, Inc.,
747 F. Supp. 6, 11-14 (D.D.C. 1990) 33 n.18, 34
Jackson v. West Indian Co. Ltd., 944 F. Supp. 423 (D.V.I. 1996) 33 n.18
Jews for Jesus v. Brodsky, 1998 WL 111676, *1 n.3 (D.N.J. Mar. 6, 1998) 42 n.29
Miami Herald Publishing Co. v. Tornillo, 418 U.S. 241, 258 (1974) 44
Otter Tail Power Co. v. United States, 410 U.S. 366, 378-79 (1973) passim
Parker v. Brown, 317 U.S. 341, 352 (1943) 28
Planned Parenthood of America v. Bucci, 1997 U.S. Dist. LEXIS 3338,
*35-36 (S.D.N.Y. 1997), affd, 1998 WL 336163 (2d Cir. Feb. 9, 1998) 40-41
Reno v. ACLU, 117 S. Ct. 2329, 2334 (1997) 40
Sakamoto v. Duty Free Shoppers, Ltd., 764 F.2d 1285 (9th Cir. 1985), cert. denied,
475 U.S. 1081 (1986); 33 n.18
Sea Air Shuttle Corp. v. Virgin Islands Port Auth., 782 F. Supp. 1070
(D.V.I. 1991) 33 n.18, 34
Silver v. New York Stock Exchange, 373 U.S. 341 (1963) 25
Strobl v. New York Mercantile Exchange, 768 F.2d 22, 26 (2d Cir.),
cert. denied, 474 U.S. 1006 (1985) 25, 28
Southern Motor Carriers Rate Conference, Inc. v. United States, 471 U.S. 48, 63 (1985) 29
Thomas, et. al. v. Network Solutions, Inc. et. Al., Civ. No. 97-2412,
1998 WL 191205 (D.D.C. filed Oct. 16, 1997) passim
Thomas v. Network Solutions, Inc.,1999-1 Trade Cases (CCH) ¶ 72,521, 1999 WL 300614 *11 (D.C. Cir. 1999) passim
United States v. AT&T, 524 F. Supp. 1356 (D.D.C. 1981) 34 n.21
United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966) 34 n.21
United States v. Philadelphia Natl Bank, 374 U.S. 321, 350-51 (1963) 27
United States v. RCA, 358 U.S. 334 (1959) 27
United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 225-27 (1940). 28, 29
United States Football League v. NFL, 842 F.2d 1335
(2d Cir. 1988) 26 n.13, 34 n.21
United We Stand America v. United We Stand, America New York,
128 F.3d 86 (2d Cir. 1997) 41
Ward v. Rock Against Racism, 491 U.S. 781 (1989) 45
STATUTES AND REGULATIONS
Bank Merger Act of 1996, 12 U.S.C. 1828 (1989) 24
Federal Grant and Cooperative Agreement Act,
1 U.S.C. § 5301 et seq. (1983) 24
National Science Foundation Act, 42 U.S.C. § 1861 et seq. (1994) 24
Sports Broadcasting Act of 1971, 15 U.S.C. § 1291 et seq. (1998) 24
Webb-Pomerene Export Trade Act, 15 U.S.C. §§ 61-66 (1997) 24
47 U.S.C. § 230 (1997) 28 n.15
2 Antitrust Law Developments (Fourth) 1132 (1997) 26 n.13, 28-29
This appeal is from the judgment of the Hon. Robert P. Patterson, Jr., of the United States District Court for the Southern District of New York, in Case 97 CIV 1946 (RPP). The district courts March 16, 1999 opinion is reported at 1999 WL 144494 and is reprinted in the Joint Appendix at A834-A866. All citations to the opinion in this brief will be to the Joint Appendix.
The Court has jurisdiction over this appeal from the March 19, 1999 final judgment of the district court (J.A. A867-68) pursuant to 28 U.S.C. § 1291. Appellant timely filed a notice of appeal on March 30, 1999. (J.A. A869.)
STATEMENT OF ISSUES
1. Whether defendant-appellee Network Solutions, Inc. ("NSI") is impliedly immune from all antitrust liability pursuant to the so-called "federal instrumentality" doctrine.
2. Whether generic top-level domain names ("gTLDs") constitute protected speech under the First Amendment.
STATEMENT OF THE CASE
pgMedia, Inc., the predecessor-in-interest to Name.Space, filed its complaint in this case on March 20, 1997, alleging unlawful monopolization by NSI in violation of Section 2 of the Sherman Act. The complaint sought injunctive and treble damage relief arising out of NSIs refusal to add pgMedias gTLDs to the Internet "root zone" controlled by NSI under a government contract for administration of Internet domain names. In a second amended complaint filed September 17, 1997 (J.A. A9-A44), Name.Space joined the National Science Foundation ("NSF") as defendant, requesting in the alternative a declaratory judgment that NSFs "directives" to NSI not to include new gTLDs on the root zone server violated the First Amendment by restraining pgMedia from engaging in certain expressive speech on the Internet.
On May 15, 1998, prior to the start of discovery, plaintiff filed a motion for preliminary injunction, asserting that the defendants conduct had caused it irreparable injury and that there was a likelihood of success on both the antitrust and First Amendment claims. This motion was treated as a motion for partial summary judgment on Count VI of the second amended complaint by the district courts June 1, 1998 order. (J.A. A278-A280.) The June 1 order specifically recognized that certain potentially dispositive issues, such as antitrust immunity and application of the First Amendment to gTLDs, should be decided first by the district court as a matter of judicial economy. Both NSI and NSF cross-moved for summary judgment under a consolidated briefing schedule set forth in the June 1 order. (J.A. A539-A540.) After briefing, the motion and cross-motions were argued on July 20, 1998.
Pursuant to the district courts subsequent order, all parties filed memoranda of law on January 12, 1999 briefing the court as to whether recent developments in domain name registration policy had mooted the case or warranted a stay of proceedings. On March 16, 1999, the district court issued an opinion and order (J.A. A834 et seq.) denying pgMedias motion and granting both cross-motions. Final judgment was entered by the district court on March 19, 1999.
STATEMENT OF FACTS
This appeal arises out of the deliberate actions of NSI to maintain its highly profitable monopoly in the market for registration of Internet domain names in certain generic Top Level Domains ("gTLDs" or "TLDs") by preventing appellant Name.Space (f/k/a pgMedia), a new competitor in that market, from gaining access to the Internets most essential featurethe ability of any Internet user, anywhere in the world, to reach any other computer connected to the Internet. This "universal resolvability" of Internet domain names is provided by the root zone server, a computer variously referred to as the "root," the "dot" and the "root server," controlled and administered by NSI pursuant to a so-called "Cooperative Agreement" with appellee NSF.
The Internet is a global network of computers, each of which has its own unique address, that operates under a common set of protocols allowing the computers and their users to interact and communicate with each other. (J.A. A298-1299.) Because an Internet address is a relatively long string of numbers (e.g., 13.42.987.65) that is difficult to remember, Internet users rely on domain names, memorable and sometimes catchy words corresponding to these numbers, in order to use electronic mail ("e-mail") and to connect to Internet sites on the World Wide Web. (J.A. A299.) But to engage in Internet communications, these domain names need to be translated into the actual numeric addresses (known as "IP numbers" since they use the "Internet Protocol") that identify each computer on the Internet.
"These IP numbers are converted into a more user-friendly, letter based format known as a domain name by specialized computers called domain name servers." Jews for Jesus v. Brodsky, 1998 WL 111676, *1 n.3 (D.N.J. Mar. 6, 1998). The root zone server effectively functions as the "traffic cop" for this translation process, providing a single, authoritative set of references used by all domain name servers worldwide to convert, or "resolve," any Internet domain name into the corresponding numeric IP address. (J.A. A299-A300.)
A domain name "consists of two parts: a host and a domain." Interstellar Starship Servs., Ltd. v. Epix, Inc., 983 F. Supp. 1331, 1335 (D. Or. 1997). Technically, the letters to the right of the "dot" are referred to as Top Level Domains ("TLDs"), while hostscomputers with assigned IP numbers that are listed in specific TLD "registries"are known as "second-level domains." (J.A. A299-A300.) For the domain name "technologylaw.com," therefore, ".com" is the TLD and "technologylaw" is the second-level domain. TLDs are known as "top level" domains because they comprise the highest-order name space available on the Internet. Second-level domains, as well as third-level domains (such as "home.netscape.com"), are subsidiary to TLDs in the hierarchy of the Internets Domain Name System ("DNS").
The function of converting a domain name into an IP number is known as "resolving" the domain. (J.A. A300;J.A. A418). Where a domain name cannot be resolved by a domain name server (a "name server"), Internet communication cannot take place. Other Internet users will be unable to connect to a Web sites host computer registered in that domain and e-mail sent to users with that domain name will be returned as "undeliverable." DNS is a hierarchical tree structure using a distributed database. (J.A. A417 and A568-A570.) In order to achieve "universal resolvability" of all domains, a single authoritative name server is needed, which functions as the "czar" of all other name servers on the Internet. (J.A. A299-A300.) The "root," or the "dot," is thus the highest-level name server on the Internet. "The root of the Internet, referred to as the dot, and the root servers connect domain names and IP numbers on the Internet." This root server is controlled and operated, at the present time and since 1993, by defendant NSI.
Each computer connected to the Internet has one or more unique IP numbers. When the Internet was first developing, the IP numbers were assigned and maintained by the late Dr. Jon Postel at the University of Southern California; this effort later became known as the Internet Assigned Numbers Authority ("IANA"), which still allocates IP numbers today. (J.A. A386.) Postel took on this task when he was a graduate student at UCLA, pursuant to a contract between the Defense Departments Defense Advanced Research Projects Agency ("DARPA") and UCLA. In 1987, the Internet community agreed on a new protocol, announced in Request for Comments ("RFC") 1034, dated November 1987 and written by Paul Mockapetris (J.A. A563), for associating named addresses with IP numbers so that users would not have to remember strings of numbers but could use words instead. For example, the Name.Space World Wide Web site can also be found by its IP number, 188.8.131.52.
The issue at the heart of this case is who decides which domain names, including which gTLDs, appear on the "A" root server controlled by NSI each day. NSI is the current registrar for new domain names under the .com, .org, .net, and .edu TLDs. (J.A. A386.) NSI has provided these registration services since 1993 pursuant to a Cooperative Agreement with the NSF. (J.A. 643.) Among other provisions, the Cooperative Agreement provides that:
[NSI] has primary responsibility for ensuring the quality, timeliness and effective management of the registration services provided under this agreement. To the extent that NSF does not reserve specific responsibility for accomplishing the purposes of this Agreement, by either special condition or general condition of this Agreement, all such responsibilities remain with [NSI].
NSF has responsibility for registration services support, support planning, oversight, monitoring, and evaluation. NSF will make approvals required under the General Conditions and, where necessary and appropriate, NSF will contact and negotiate with Federal agencies and other national and International members of the Internet community to further the efforts of this project.
Under the Cooperative Agreement, NSI became the registrar for the .com, .org, .net, .edu, and .gov TLDs; IANA continued its role as overseer of the allocation of IP numbers and domain name registrations. (J.A. A421.)
In July 1996, Name.Space established its own network of 13 name servers to provide a domain name registry in competition with NSIs. (J.A. A300.) Name.Space has begun to accept domain name registrations under approximately 530 new gTLDs. (J.A. A302, A304.) Some of these gTLDs are forpresident, formayor, and computers. (J.A. A300.) Name.Space name servers are in compliance with all existing industry standards and protocols, but domain names registered under Name.Spaces gTLDs are not universally resolvable, because they are not listed in the root zone files. (J.A. A300.) If the root servers do not recognize a top level domain name, the domain address cannot be resolved and the connection fails. (J.A. A300.)
If NSI were to amend the root file on the A server to include Name.Spaces gTLDs and the domain names Name.Space registers thereunder, then the root zone files on the other 12 root servers would receive the updated information and make Name.Spaces new domain names. In the words of the Commerce Departments National Telecommunication Information and Administrations ("NTIA") June 6, 1998 policy statement, "[u]niversal name consistency on the Internet cannot be guaranteed without a set of authoritative and consistent roots. Without such consistency messages could not be routed with any certainty to the intended addresses." Management of Internet Names and Addresses, 63 Fed.Reg. 31741, 31742 (1998)(J.A. A616).
On March 11, 1997, pgMedia wrote to NSI requesting that NSI add PGM-registered domain names to "the Configuration File named.root running on your root name servers." (J.A. A358.) On March 12, 1997, NSIs outside general counsel rejected to appellants request, saying that NAI "takes its direction from, and is under the authority of, the Internet Assigned Numbers Authority (IANA), located at the University of Southern California." (J.A. A360.)
On March 20, 1997, PGM filed its initial complaint in this action, naming NSI as the sole defendant, charging antitrust violations, and naming IANA as a non- party co-conspirator. On March 27, 1997, NSIs counsel wrote to Jon Postel at IANA to seek confirmation that what NSI had told pgMedia in response to pgMedias March 11, 1997 letter was correct, i.e., that "NSI maintains the information on that root-server under the authority and at the direction of the IANA and NSI can only make changes to the Configuration File at the direction of IANA." (J.A. A362.) On April 4, 1997, the general counsel of the University of Southern California, where IANA was residing, responded to NSIs March 27, 1997 letter stating:
The statement made in your letter concerning the relationship between the Internet Assigned Numbers Authority ("IANA") and Network Solutions, Inc. ("NSI") is not correct. We are aware of no contract or other agreement that gives IANA authority over your clients operations. The IANA has no authority to establish a generic top level domain ("gTLD") without an Internet community consensus arrived at through committee review and ample opportunity for public impact. Instead, the restriction in expansion of gTLDs has thus far been due to consensus which your client has chosen to accept in refusing requests from potential registrars of new gTLDs. (J.A. A364.)
On June 10, 1997, NSIs Internet business manager, David Graves, wrote to Don Mitchell, Cognizant Program Official for the NSFs Network and Communication Division, expressing concern over pgMedias suit and other potential litigation over the TLD registration issue.
There are no technological restrictions or impediments to the inclusion of additional TLDs to our root zone file. . . .
Network Solutions has in the past reviewed and forwarded requests for new TLDs to the IANA. With few exceptions, the TLDs, however, were for new country code designations. Network Solutions consulted with the IANA before including those TLDs on our root zone file. However, in the face of the IANAs unwillingness or inability to accept any responsibility, and the impending legal threats, it appears that the decision process will be limited at least initially to Network Solutions operating in a responsible manner with NSF concurrence. We envision that the administration of Internet top level domains will need to be conducted in this manner during the Cooperative Agreement, while the future governance issues of the Internet evolve and mature. (J.A. A366.)
NSF responded on June 25, 1997, and refused to concur in NSIs proposal:
The National Science Foundation also specifically requests that NSI take NO action to create additional TLDs or to add any other new TLDs to the Internet root zone file until NSF, in consultation with other U.S. government agencies, has completed its deliberations in this area and is able to provide further guidance.
On August 11, 1997, in response to a request by NSI for "clarification" of NSFs June 25, 1997 letter, NSF explained that:
NSF is currently discussing with several Federal agencies many of the governance and authority issues raised by David M. Graves June 10, 1997 request that NSI be allowed to create additional TLDs. As part of that effort, the National Telecommunications and Information Administration of the Department of Commerce on July 2, 1997 solicited public comments on Registration and Administration of Internet Domain Names [62 Fed.Reg. 35896 (1997) ] with a response deadline of August 18, 1997. Addition of any new TLDs in the midst of this national policy formulation would be at best premature and at worst destabilizing. Consequently, the Foundation will not approve such action. (J.A. A369.)
On September 11, 1997, pgMedia filed a second amended complaint. The second amended complaint added NSF as a defendant, charged NSF with violating pgMedia's rights under the First Amendment, and added a Count VI in which pgMedia sought declaratory judgment against both defendants.
Meanwhile, various Federal agencies were working together to study domain name problems and develop a federal policy on domain name competition. (J.A. A424.) On July 1, 1997, "as part of the Clinton Administrations Framework for Global Electronic Commerce, the President directed the Secretary of Commerce to privatize the domain name system (DNS) in a manner that increases competition and facilitates international participation in its management." (J.A. A525.) On July 2, 1997 NTIA issued a request for public comments on "the current and future system(s) for the registration of Internet domain names." Request for Comments on the Registration and Administration of Internet Domain Names, 62 Fed. Reg. 35896 (1997)(J.A. A626-A627). Over 430 comments were received. On February 20, 1998, NTIA published a proposed rule. Improvement of Technical Management of Internet Names and Addresses, 63 Fed.Reg. 8826 (1998)(J.A. A628-A635). The proposed rule called for the transfer of Internet DNS management to a private not-for-profit corporation but proposed that during the transition period that five new gTLDs be added to the DNS. (J.A> A631-A633.)
Over 650 comments were received in response to the proposed rule. Management of Internet Names and Addresses, 63 Fed.Reg. 31741 (1998)(J.A. A614-A625). On June 10, 1998, having considered those responses, NTIA published a statement of policy in the Federal Register. The policy reiterated the DOCs desire to shift DNS management to the auspices of a non-profit corporation. The goal was to have the corporation carry out its operational responsibility by October 1998, with the DOC gradually phasing out until the transition would be complete by September 30, 2000. (J.A. A618.) One change made in the policy statement from the proposed rule was that the DOC would not implement any new gTLDs during the transition to the new non-profit corporation. The policy statement emphasized that it was not "a substantive regulatory regime for the domain name system . . . . [It] is not a substantive rule, does not contain mandatory provisions and does not itself have the force and effect of law." 63 Fed. Reg. at 31748.
On September 9, 1998, NSF and DOC entered into a Memorandum of Agreement pursuant to which NSF transferred responsibility for administering its Cooperative Agreement with NSI to DOC. This was done "to ensure the seamless and stable transition from the existing framework of Internet administration to a private sector management structure as set forth in the statement of policy." (J.A. A793.) On October 6, 1998, NSI and DOC extended the Cooperative Agreement to September 30, 2000 at the latest by agreeing to "Amendment No. 11." Amendment No. 11 provided for NSIs recognition of the new non-profit corporation described in the June 10, 1998 Statement of Policy ("NewCo"); authorized NSIs continued operation of the primary root server during the transition to NewCo; and provided for "the development, deployment and licensing by NSI of a mechanism that allows multiple registrars to accept registrations for the [gTLDs] for which NSI acts as a registry." (J.A. A796.) Amendment No. 11 also provides:
NSI agrees to continue to function as the administrator for the primary root server for the root server system and as a root zone administrator until such time as the [DOC] instructs NSI in writing to transfer either or both of these functions to NewCo or a specified alternative entity.
While NSI continues to operate the primary root server, it shall request written direction from an authorized [DOC] official before making or rejecting any modifications, additions or deletions to the root zone file. Such direction will be provided within ten (10) working days and it may instruct NSI to process any such changes directed by NewCo when submitted to NSI in conformity with written procedures established by NewCo and recognized by the [DOC]. (J.A. A796.)
In the fall of 1998, the Internet Corporation for Assigned Names and Numbers ("ICANN") was incorporated as a nonprofit public benefit corporation in California; its revised Articles of Incorporation were filed November 21, 1998. (J.A. A790; J.A. A801.) ICANNs bylaws were adopted November 23, 1998. (J.A. A803.) On November 25, 1998, DOC and ICANN entered a Memorandum of Understanding, pursuant to which they agreed to jointly design procedures to transition the DNS system to private sector administration. ICANN agreed to "[c]ollaborate on the design, development and testing of a plan for creating a process that will consider the possible expansion of the number of gTLDs." (J.A. A828.)
On December 17, 1998, the Court ordered supplemental briefings on the questions of whether, in light of the incorporation of ICANN and the Memorandum of Understanding between ICANN and DOC, (1) this action is now moot; and (2) if the action is not moot, whether it should be stayed, and for what duration. On January 12, 1999, PGM, NSF, and NSI filed their briefs on these questions and entered into a stipulation. That stipulation provided that
NSFs June and August 1997 written directives to NSI, which were a subject of the parties summary judgment briefs, are no longer relevant to the pending motions. The parties further agree that for the purposes of the pending motions:
(a) Plaintiff does not challenge the validity of the Memorandum of Agreement between the NSF and the Department of Commerce (Exhibit A hereto) or the statutory authority of the NSF and the Department of Commerce to enter into that Memorandum of Agreement;
(b) Plaintiff does not challenge the validity of Amendment No. 11 to the Cooperative Agreement (Exhibit B hereto) or the statutory authority of the Department of Commerce to enter into that Amendment with NSI. Rather, plaintiff seeks a declaration that Amendment No. 11 confers no antitrust immunity on NSI for actions taken pursuant to that Amendment;
(c) NSI acknowledges that Congress has not enacted any statute that confers express antitrust immunity with respect to NSIs activities under the Cooperative Agreement, as amended by Amendment No. 11. Rather, NSI seeks a declaration that implied antitrust immunity applies to those activities under the "federal instrumentality" doctrine; and
(d) Plaintiff challenges, under the First Amendment to the U.S. Constitution, that portion of Amendment No. 11 to the Cooperative Agreement that requires written governmental direction before changes are made to TLDs included in the Internets root zone file.
SUMMARY OF ARGUMENT
The district court erred as a matter of law in granting summary judgment for NSI and the government, both as to antitrust immunity and application of the First Amendment to gTLDs.
The district courts conclusion that NSI is immune from Sherman Act antitrust liability under the so-called "federal instrumentality" doctrine is wrong for three reasons. First, decades of settled antitrust jurisprudence make clear that federal agencies such as NSF have no power to immunize private parties without express authorization from Congress, which is concededly lacking in this case. The federal instrumentality doctrine is inconsistent with the Supreme Courts leading Otter Tail decision on Section 2 "essential facilities" liability, has never been accepted by this Court, and should be rejected.
Second, the federal instrumentality doctrine is limited to the unremarkable proposition that where a federal agency agrees to an exclusive contract with a private party, the contract itself cannot be attacked as a violation of Section 1 of the Sherman Act. Until the district court below, no court had ever extended the federal instrumentality doctrine to protect a defendants anticompetitive use of a government-granted monopoly against competitors in the marketplace. The perverse consequences of allowing a federal government contractor broader antitrust liability than that applicable to "state action" demonstrates the folly of extending the doctrine in the unbounded fashion of the district court below. Indeed, affirmance of the district court would require overruling this Courts landmark Strobl decision on implied antitrust immunity.
Third, even if the federal instrumentality doctrine is potentially applicable, it cannot protect NSI merely on the ground that NSI acted "pursuant to" its agreement with NSF or because, as the district court reasoned, the NSF/NSI contract "is a partnership between NSF and NSI that is valid under" applicable government contracting statutes. (J.A. A858.) Rather, as the D.C. Circuit has indicated in addressing this issue, "[a] contractor may be free to perform the contract in a number of ways, only one of which is anticompetitive." Therefore, even if the federal instrumentality doctrine is accepted by this Court, the district courts judgment must at least be remanded for consideration of whether NSIs "discretion to determine whether or not to add new TLDs" (J.A. 859) is within the scope of any plausible antitrust immunity.
As to the First Amendment claim, in this case of first impression the district court incorrectly held that gTLDs are not expressive speech and are entitled to no constitutional protection whatsoever. As the Supreme Court has ruled, however, any speech communicated over the Internet carries the same protection as do the historically inviolate media, newspapers. The district courts reasoning that Internet gTLDs are "rather like a telephone number" (J.A. A864) is not dispositive, because Internet domain names are distinct from numerical Internet Protocol ("IP") addresses of specific computers on the Internet. The record is uncontradicted that domain names are used by Internet Web sites to convey meaning as to the nature of their content (i.e., news.com) specifically in lieu of reliance on numbers alone. Finally, the district court improperly truncated its analysis of whether forcing pgMedia to use specific "strings" in domain names ending in ".com" as opposed to other gTLDs impermissibly compelled speech. The TLD is not "like the 1-800 or 1-888 prefix (or any other area code) . . . simply a routing instruction that helps computers find each other." (J.A. A865).
I. THE NSF CONTRACT ACCORDS NSI NEITHER EXPRESS NOR IMPLIED IMMUNITY FROM ANTITRUST LIABILITY
NSI claimed below that it was immune from antitrust liability because it "was and is acting in accordance with the directives of an agency of the United States government that possessed and continues to possess actual or apparent authority to give such directions to [NSI]." The district court, sweeping even more broadly, held that "private entities under contract with federal instrumentalities are immune from Sherman Act liability for their actions taken pursuant to that contract. (J.A. A853.) Even if the "federal instrumentality" doctrine were consistent with settled antitrust jurisprudence or with this Courts precedent on implied antitrust immunity, which it is not, the district courts holding improperly extended the doctrine from the narrow confines of a government contract to the broader relationship between government contractors and their competitors, and thus cannot be affirmed.
A. Without Express Congressional Power To Immunize Private Conduct, The Purported "Public Purpose" of The Cooperative Agreement is Immaterial To Sherman Act Immunity
Congress can by statute exempt certain industries or conduct from the reach of the antitrust laws, and has granted express antitrust immunity in some limited circumstances. For instance, the Bank Merger Act of 1966, 12 U.S.C. § 1828(c)(5)(B), expressly permits federal banking agencies to "approve" bank mergers that would otherwise violate the antitrust laws if they make certain public interest findings, and the Sports Broadcasting Act of 1971, 15 U.S.C. § 1291, authorized the NFL and AFL to merge without antitrust restraint. But as the district court acknowledged (J.A. 852), NSI makes no claim of express antitrust immunity, and there is nothing in the National Science Foundation Act, 42 U.S.C. § 1861 et seq., or the statutory authority for government "cooperative agreements," 31 U.S.C. § 6302, that authorizes government agencies such as NSF to accord antitrust immunity to NSI or to any other private party.
In the absence of express congressional immunity, repeals of the antitrust laws by implication are "strongly disfavored, and have only been found in cases of plain repugnancy between the antitrust and regulatory provisions." United States v. Philadelphia Natl Bank, 374 U.S. 321, 350-51 (1963). Even where conduct is subject to the prior approval of an agency, such regulatory oversight does not, without more, exempt private parties from antitrust. United States v. RCA, 358 U.S. 334 (1959); California v. FPC, 369 U.S. 482 (1962). Only where there is a pervasive regulatory scheme, one that imposes obligations necessarily inconsistent with antitrust, is implied antitrust immunity appropriate. Gordon v. New York Stock Exchange, 422 U.S. 659 (1975); Silver v. New York Stock Exchange, 373 U.S. 341 (1963).
As this Court has held, implied antitrust immunity is found only where there is a "pervasive regulatory scheme," where an antitrust exemption is "necessary to make the [statute] work," and "even then only to the minimum extent necessary." Strobl v. New York Mercantile Exchange, 768 F.2d 22, 26 (2d Cir.), cert. denied, 474 U.S. 1006 (1985). This predicate for a claim of implied immunity is absent here, as both NSF and NSI conceded below, "NSF does not regulate NSI." There is no pervasive regulatory scheme to serve as the basis for implied antitrust immunity in this case. NSF is chartered to "foster and support access by the research and education communities to computer networks." 42 U.S.C. § 1862(g). But the agency has no statutory authority to regulate either NSI in specific or Internet domain name registration in general.
The district court held that NSF has the power to immunize NSI under its "Cooperative Agreement" contract because where the federal government "delegates or contracts to perform a function or provide a service," the private actor "is entitled to the same protections against antitrust liability as the [g]overnment itself." (J.A. A854) That is not and cannot be a correct statement of antitrust law. The government contracts to perform thousands of functions every year. As the Supreme Court held in Otter Tail, however, "government contracting officers do not have the power to grant immunity from the Sherman Act." Otter Tail Power Co. v. United States, 410 U.S. 366, 378-79 (1973); United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 225-27 (1940)("Though employees of the government may have known of these programs and winked at them or tacitly approved them, no immunity would thereby have been obtained."). Thus, "[i]t is no defense that federal officials know of, approved or induced the challenged conduct when such conduct was not undertaken pursuant to statutory authority." 2 Antitrust Law Developments (Fourth) 1132 (1997)(collecting cases).
The settled nature of this rule cannot be debated. In Otter Tail, the leading essential facilities case, an electric power company with monopoly control over the facilities necessary to "wheel" electricity was required under the antitrust laws to provide wheeling access to potential competitors, 410 U.S. at 368, notwithstanding the fact that its contract with a federal agency included restrictions against the practice. Id. at 374-75. And in Socony-Vacuum, the Supreme Court held that a resale price maintenance scheme was unlawful under the antitrust laws even though it was approved by federal officials and was "consistent with the general objectives and ends sought to be obtained" by the agencys statute. 310 U.S. at 227-28. In the absence at least of statutory power to compel private conduct, the review and even express approval of a federal agency is thus "irrelevant to the legality under the Sherman Act." Id.
As articulated by Judge Patterson, the federal instrumentality doctrine sweeps so broadly as to entirely swallow the settled rules of Strobl and Otter Tail. Under the district courts approach, private contractors enjoy complete antitrust immunity merely because they have a contract with the government, without regard to whether the government approved or directed the challenged anticompetitive conduct. More importantly, any federal agency would automatically immunize all of its contractors under all of its contracts, whether or not the agency had been granted statutory authorization by Congress to exempt private conduct from the reach of the antitrust laws. And private entities would be automatically immune from antitrust liability merely because they had contracted with the federal government (or a federal "instrumentality"), without meeting the high burden imposed by Strobl for judicial extension of implied immunity. Government contractors would thus receive blanket antitrust immunity merely as a result of the contracting process, without any requirement for "pervasive" governmental regulation.
The enormous legal consequences of this radical development, completely ignored by the district court below, are that private parties operating under federal contract would receive greater antitrust immunity than sovereign states and their political subdivisions. Under the "state action" doctrine of Parker v. Brown, 317 U.S. 341, 352 (1943), and its progeny, states may immunize private conduct only in accordance with a "clearly articulated and affirmatively expressed" policy of displacing competition with monopoly. Southern Motor Carriers Rate Conference, Inc. v. United States, 471 U.S. 48, 63 (1985). In contrast, under the district courts rule, federal agencies would immunize conduct without any predicate requirements whatsoever except the existence of contracting authority. (J.A. A856) ("NSF had the authority to enter into the Cooperative Agreement with NSI and to assign the registration tasks to NSI which could otherwise have been done by NSF itself.").
Finally, the district courts observation that the Cooperative Agreement was "entered into to carry out the public purpose of computer network development," (J.A. 859), is irrelevant. First, although the Federal Grant and Cooperative Agreement Act permits cooperative agreements for a "public purpose," 31 U.S.C. § 6306, neither that Act nor any other statute suggests that cooperative agreements can immunize private recipients. The absence of express immunization powers in the Act should be virtually dispositive under this Courts Strobl standard, because the Act does not create a "pervasive regulatory scheme" and an antitrust exemption is plainly not "necessary to make the [statute] work." Strobl, 768 F.2d at 26.
Second, nothing about the DNS system or registration of domain names is a public governmental function. It is uncontested that NSF "is under no mandate to support domain name registration" on the Internet. (J.A. A332-A333.) As the D.C. Circuit has held in a related context:
Simply because NSF might have been able to perform domain name registration services does not transform this into a governmental service. . . . A recent and novel function such as domain name registration hardly strikes us as a quintessential government service. . . . Indeed, it was not the government but the Internet Assigned Numbers Authorityheaded by the late Dr. Postel at USCthat originally maintained [the root zone files].
Thomas, 1999 WL 300619 *8 (citations omitted; emphasis in original). Consequently, the premise of the both the district court and NSI namely that a government contractor performing a public function "delegated" by the government is immunized to the same extent as the government is inapplicable in this case.
B. The District Court Improperly Extended the Federal Instrumentality Doctrine To Immunize Not Only the Contract With the Government, But All of The Private Defendants Conduct Directed Against Competitors
Name.Space was clear in its motion and supporting papers below that it did not challenge the lawfulness of the Cooperative Agreement or the governments grant of a de facto domain name registration monopoly to NSI. (J.A. A862). Rather, plaintiff challenged the exclusionary use of NSIs monopoly power to maintain that monopoly by a refusal to deal. (J.A. A863.) The district court rejected this distinction, citing to dicta in several federal instrumentality cases, one of which has since been reversed on appeal, to conclude that "[t]he doctrine protects the actions of the monopolist as well as the monopoly itself." (J.A. A863)(emphasis in original).
This rationale is flawed. The district courts holding is an improper extension of cases, not adopted in this Circuit, that actually stand for a quite unremarkable proposition. Only seven reported cases appear ever relied on this so-called doctrine, and all of these reflect a common situation that is not present in this litigation. In each of these cases, a federal agency or federally-created entity (e.g., a federal territory or public corporation) contracted with a third-party private entity to exclusively perform a service (such as public telephone service), and a resulting antitrust challenge to the exclusivity of the contract as an unlawful agreement or conspiracy to monopolize was rejected. As the Seventh Circuit has explained, "[i]f a particular purchase is exempt from liability under the antitrust laws, both the seller and the purchaser in the transaction are exempt Champaign-Urbana News Agency, Inc. v. J.L. Cummins News Co., 632 F.2d 680, 693 (7th Cir. 1980) (exclusive contract to provide books and magazines to Army and Air Force Exchange Services).
For instance, in IT&E Overseas, Inc. v. RCA Global Communications, Inc., 747 F. Supp. 6, 11 14 (D.D.C. 1990), a federal entity (Guam Telephone Authority) granted an exclusive telephone franchise to RCA Global Communications. The court held that because the federal instrumentality was immune from antitrust suit, the contract granting a monopoly was equally immune. In Sea Air Shuttle Corp. v. Virgin Islands Port Auth., 782 F. Supp. 1070 (D.V.I. 1991), another federal entity entered into an exclusive monopoly contract to manage and operate sea plane ramps, which the court held to be immune from antitrust challenge. And in Thomas, plaintiffs alleged that the Cooperative Agreement between NSI and NSF was an unlawful conspiracy to monopolize. The court concluded, correctly, that a private antitrust plaintiff cannot challenge a governmental monopoly contract as an unlawful Section 1 agreement. Each of the other "federal instrumentality" cases is in accord.
What is unusual in this case is that the district court, with virtually no discussion except an ipse dixit pronouncement, extended this simple principle beyond the government monopoly contract itself to immunize a defendants anticompetitive use of the monopoly power granted by the government. None of the decided cases immunizes the use of a government-granted monopoly franchise against competitors in a manner that would otherwise violate Section 2 of the Sherman Act. Thus, to the extent any "federal instrumentality doctrine" exists, it does not provide blanket antitrust immunity to a party entering into a government contract.
This simple conclusion, evident on the face of the reported federal instrumentality cases, escaped the district court.
"Whether there is, or should be, any such federal instrumentality doctrine in this context is not settled." Tomas, 1999 WL 300614 *8. Represented graphically in Exhibit 1 to this brief, the key failure of the court below was in failing to distinguish between protection of the government contract itself and immunization of the defendants conduct as a matter of law. Unlike the plaintiffs in the Thomas and in Beverly relied on by the district court, appellant is not challenging the lawfulness of the Cooperative Agreement. See Beverly, 1998 WL 320829 *4 ("Beverly also contends that . . . the Cooperative Agreement creates a monopoly.") NSI was granted the exclusive right to register ".com" domains under that contract, and the antitrust claims in this case do not challenge NSIs ".com" monopoly. Rather, as a result of the Cooperative Agreement, NSI also has control of the Internet root zone server, and has refused to deal with pgMedia for TLD access to that essential facility. Under settled antitrust principles, if NSI acts to "maintain" or "use" its lawful monopoly power in an exclusionary manner, for instance by refusing to deal with competitors, there is not and can be no antitrust immunity.
Even if it were inclined to accept Judge Pattersons unprecedented extension of these federal instrumentality cases, this Court must still address the fact that Strobl is the law of this Circuit. Under Strobl, implied immunity cannot be found unless a "plain repugnancy" between regulation and antitrust exists. 7236 F.2d at 27. To adopt, and extend, the cases proffered by the district courtand thus create a new form of implied antitrust immunityrequires, in appellants view, that Strobl be overruled. If, as NSI argued below, the federal instrumentality doctrine is a completely separate line of authority from the "pervasive regulation" immunity cases, then it is clear that this Court at least has not yet adopted that view.
C. As The D.C. Circuit Has Emphasized, NSI Is Not Immune Under the Federal Instrumentality Doctrine Merely Because It Acted "Pursuant To" the Cooperative Agreement
Even if the federal instrumentality doctrine is applicable, it cannot protect NSI merely on the ground that NSI acted "pursuant to" its agreement with NSF or because, as the district court reasoned, the NSF/NSI contract "is a partnership between NSF and NSI that is valid under" applicable government contracting statutes. (J.A. A858-A859.) Rather, as the D.C. Circuit has indicated in addressing this issue, "[a] contractor may be free to perform the contract in a number of ways, only one of which is anticompetitive." Therefore, even if the federal instrumentality doctrine is adopted in this Circuit, the district courts judgment must at least be remanded for consideration of whether NSIs "discretion to determine whether or not to add new TLDs" (J.A. A859) is within the scope of any plausible antitrust immunity.
Accepting the federal instrumentality as good Second Circuit law does not conclude the inquiry necessary in this case. Whether or not NSI was acting "pursuant to" the Cooperative Agreement is immaterial if its specific refusal to deal with pgMedia was not both contemplated by and authorized by NSF. If Otter Tail remains valid and it has not been overruled by the Supreme Court then it remains true that government contracting officers "do not have the power to grant [antitrust] immunity." Otter Tail, 410 U.S. at 378-79. Consequently, both the 1997 NSI "directive" and the subsequent authorization for NSF control over the Internet root servers in Amendment No. 11 to the Cooperative Agreement are not dispositive. Despite NSFs arguments, the district court did not find that the agency had contractual authority to issue the former; and the 1998 stipulation (J.A. A854) concedes only that Amendment No. 11 was not unlawful, not that it conferred antitrust immunity. (J.A. A855).
As a result, this case raises the issue left open in the D.C. Circuits Thomas opinion, namely "[w]hether and under what circumstances a federal contractor has antitrust immunity." Thomas, 1999 WL 300619 *7. Appellant believes that, on this record, this Court cannot resolve that question in favor of appellees even if it accepts the doctrine in the first instance. It is not contradicted that, at least until Amendment No. 11, NSI still had "discretion" to determine whether to add new gTLDs to the root server. (J.A. A854.) Since "that discretion was ceded to NSI by NSF as part of the Cooperative Agreement," id., then the only possible basis for affirmance is that all conduct of a private contractor is immune without regard to the level, if any, of governmental approval and authorization.
It may hypothetically be appropriate for courts to conclude that, if the federal instrumentality doctrine protects a government contractors conduct, activities that would otherwise violate the antitrust laws may be immune only if they are the subject of a specific governmental mandate that the government has reserved for itself in the contract. That is not the case here, however, because the relevant facts were disputed below and were not resolved by the district court. All facts and inferences must be resolved in favor of pgMedia as the non-moving party on defendants cross-motions for summary judgment. Accordingly, because for summary judgment purposes NSIs freedom to add new gTLDs must be accepted, the Court must reverse the district courts judgment. Whether or not a remand is appropriate depends, in turn, on whether the legal standard fashioned by the Court accepts the broad formulation of the doctrine asserted by the district court or the narrower formulation advanced above.
II. THE DISTRICT COURT INCORRECTLY HELD THAT DOMAIN NAMES ARE NOT EXPRESSIVE SPEECH ENTITLED TO CONSTITUTIONAL PROTECTION
Domain names are textual expressions of communicative messages that warrant protection under the First Amendment. Despite its clear precedent to the contrary, however, the district court held that "the speech plaintiff asserts is infringed . . . is not speech at all." (J.A. A864.) In reaching this conclusion, the district court principally relied upon an obscure footnote to an unrelated case to incorrectly analogize domain names to telephone numbers that have no expressive value. (J.A. A864.) As both the precedent in this Circuit and the evidence below demonstrate, however, domain names constitute expressive speech that must be protected by the strictest First Amendment standard of Reno v. ACLU, 117 S. Ct. 2329 (1997).
As another case from the district court has squarely held, domain names deserve First Amendment protection when the name "is part of a communicative message." Planned Parenthood Federation of America v. Bucci, 1997 WL 133313 *11 (S.D.N.Y. 1997), affd, 152 F.2d 920 (2d Cir. 1998). Name.Spaces domain names, including "for.mayor" and "microsoft.free.zone," undoubtedly evince the "expressive purpose" that this Court has required of a communicative message. United We Stand America v. United We Stand, America New York, 128 F.3d 86, 92 (2d Cir. 1997). Thus, appellant has in fact satisfied its burden of showing that its speech warrants First Amendment protection. See Clark v. Community for Creative Non-Violence, 468 U.S. 288, 293 n.5 (1984).
The district courts opinion demonstrates a fundamental misunderstanding of the expressive function of gTLDs and domain names. The court incorrectly analogized domain names to telephone numbers to support its conclusion that no First Amendment interests are involved. Stating that "a domain name is like a telephone number mnemonic, then the TLD is like the 1-800 or 1-888 prefix (or any other area code) (J.A. A865.)," the district court held that "the TLD is simply a routing instruction that helps computers find each other." (Id.).
This conclusion is unfounded and unsupported by the record. Appellant submitted an unrefuted factual declaration attesting to the expressive function of domain names and gTLDs, which was ignored by the district court. Further, as noted on brief, NSI routinely forbids the registration of domain names that it finds objectionable, asserting that it has "a right founded in the First Amendment to the U.S. Constitution to refuse to register, and thereby publish, on the Internet registry of domain names words that it deems to be appropriate."
Most importantly, unlike "800" number mnemonics, domain names do not have any formal correlation to a specific IP number. While the telephone keypad can "spell" a telephone number, the relationship between a domain name and its associated IP address is entirely different. Nothing expressed in "name-space.com" is a mnemonic for the IP number 184.108.40.206. Rather, domain names are an expression of a website developers personality, business goals or social outlook.
Internet users decide whether to "visit" a particular Web site based, in part, on the information conveyed to them by the domain name. Thus, domain names are a critical form of communicative interaction with the public.
Mueller Decl. ¶ 9. As many other authorities have also recognized, because IP addresses are relatively long strings of numbers (e.g., 13.42.987.65) that are difficult to remember, Internet users rely on domain names, memorable and sometimes catchy words corresponding to these numbers, in order to use electronic mail ("e-mail") and to connect to Internet sites on the World Wide Web.
Thus, by their very nature, domain names serve to identify the content of a Web sites information (i.e., news.com) specifically in lieu of reliance on numbers alone. Indeed, the district courts conclusion that "there does not appear to be a requirement that a computer user wishing to establish an Internet site have a domain name at all" is technologically false. With current DNS technology, called "virtual hosting" or "multihosting," it is frequently the case that one IP number is assigned to many different domain names. (In this way, numerous users can share server space but still maintain individually identifiable and unique domain names.) In order to resolve an IP number from a domain name, the Internet root server must see the proper textual domain name, and not only the IP address. Thus, if a user typed in only the IP number, intending to reach one of many "multihosted" websites, the server would be unable to connect her to that specific website.
In addition, the district courts opinion improperly limits the First Amendment issue by concluding that gTLDs are not speech, because under the NSF limitation to ".com" and existing gTLDs, appellant can utilize any string it wants, so long as it ends in ".com." (J.A. A865.) To the contrary, Name.Space is presently forced to use the second-level domain name "name-space.com" because NSF refuses to assign the gTLD ".space" to the root server. Under well-settled principles of First Amendment law, this difference constitutes an unlawful compulsion of speech. That is to say, the name under which pgMedia is forced to register includes information about itself that is properly a private matter and that it would otherwise not include. The Supreme Court has held that compelled speech is as violative of the First Amendment as suppressed speech. Miami Herald Pubg Co. v. Tornillo, 418 U.S. 241 (1974)(invalidating Florida right of reply statute requiring newspaper to publish responses by political candidates).
Because the district court held that no constitutional significance attaches to domain names, it never decided NSFs alternative theory that the gTLD ban was a "time, place and manner" restriction instead of a prior restraint on or compulsion of speech. There is no basis for affirmance on this ground, however. Time, place and manner restrictions occur when a government authority seeks to alter, on a content-neutral basis, the location, time or volume at which speech is communicated. For example, inWard v. Rock Against Racism, 491 U.S. 781 (1989), the Supreme Court upheld a New York city ordinance requiring that bands performing in Central Park use the citys own sound equipment in order to decrease noise pollution. The stage "was open, apparently, to all performers," and only their volume was regulated, with no change in the content of the songs performed. 491 U.S. at 790.
These cases are entirely unrelated to the present situation, for NSFs ban on new gTLDs has excluded pgMedia from the public domain name "stage" unless it fundamentally changes its content. Appellant and its customers are not permitted to speak at all unless they use the precise ".com," ".net" and ".org" formulations permitted by the government. Legitimate time, place and manner restrictions cannot require alteration of the content of communication, but rather only its method, location and timing. By banning all speech using "alternative" TLDs, the government is dictating what Internet speakers can communicate in the DNS "domain space," not merely how and when they can speak. Thus, it is fundamentally incorrect to assert that the NSF ban is content-neutral, because by its very terms it precludes all use of TLDs as communicative messages unless they meet the governments ad hoc rules for the content of TLDs.
For all these reasons, the judgment of the district court should be reversed.
Glenn B. Manishin
Stephanie A. Joyce
Blumenfeld & Cohen
1615 M Street, N.W., Suite 700
Washington, D.C. 20036
Attorneys for Appellant Name.Space, Inc.
Dated: June 21, 1999