Much ado about nothing; why the Uniregistry request for antitrust immunity is meaningless and its conclusions misleading

With much fanfare last month, Uniregistry announced that proposals for dispute resolution between New TLD applicants in lieu of ICANN’s so-called “Auction of Last Resort” posed significant antitrust risks. Their claim of concern was not based on any critical antitrust analysis, but rather on the fact that they had sought a “Business Review” letter from the Antitrust Division of the U.S. Department of Justice (DOJ), and, according to Uniregistry, the DOJ failed to provide them a positive response and discussed the issue with them.

I am a former trial attorney in the DOJ Antitrust Division and the former Policy Director of the Federal Trade Commission (FTC). At the FTC, I was in charge of the business review letter process and authored several of these letters. The specter of concern raised by Uniregistry is based on a misinterpretation of the business review process and not sound antitrust analysis.

Uniregistry suggests that simply the fact that they failed to receive a positive response from the DOJ suggests that enforcement action is likely. That is hardly the case. The DOJ has very high standards for issuing business review letters. Review letters are typically only issued where the facts and the law are fairly clear cut and demonstrate that there are no potential competitive concerns raised by the proposed conduct. Because of these very high standards, the DOJ typically receives numerous review letter requests, but issues only two or three business review letters a year. The fact they did not grant Uniregistry’s request did not mean the conduct raised substantial competitive concerns. In my experience, it simply means that the DOJ lacked the unambiguous compelling facts to say that there were no competitive issues.

If the DOJ saw some potential competitive problems it would have responded with a letter articulating those concerns. In fact, one week after the Uniregistry announcement, the DOJ did exactly that, turning down a business review request on a patent exchange system because of potential competitive concerns. See http://www.justice.gov/atr/public/press_releases/2013/295147.htm. The DOJ’s failure to respond formally to Uniregistry certainly does not support the allegation that they have competitive concerns over the dispute resolution system.

Contrary to Uniregistry’s suggestion, the DOJ’s refusal to issue a positive letter does not suggest the conduct at issue is likely to lead to antitrust enforcement. If the DOJ thought there were competitive concerns sufficient to bring enforcement action, its procedures instruct that they would respond clearly in that fashion. Rather, according to Uniregistry, they simply responded that the conduct is not wholly immune from scrutiny. Stated another way, the failure to secure a business review letter does not mean the DOJ is likely to bring a law enforcement action. Indeed, in over 40 years there has never been a case where a rejected business review letter request led to an enforcement action, even when the DOJ has suggested that the conduct at issue could potentially present antitrust issues.

Moreover, the key to any analysis of proposed conduct from the perspective of the antitrust laws is whether consumers or other parties may be harmed by the conduct at issue. In this case, it seems fairly unambiguous that ICANN will not be harmed by the dispute resolution system. In fact, they designed the dispute resolution system pursuant to which they encourage applicants to engage in dispute resolution in order to avoid the ICANN auctions. Indeed, there never has been a successful antitrust case brought where the alleged plaintiff was the party that actually designed the restraints at issue.

Uniregistry’s request was unusual in another important respect. Typically business review letters are requested by the parties proposing the conduct or those that have created the arrangement, but in this case ICANN did not go to the DOJ. A critical part of any analysis of a proposed arrangement is the “purpose and intent,” but Uniregistry was in no position to answer those critical questions.

In any case, regardless of how Uniregistry might want to interpret DOJ’s non-action, there’s little antitrust risk posed by anticipated private auctions or the registry dispute resolution system as a whole. First, as suggested earlier, the only entity that could be harmed by the system is ICANN, which designed the system. ICANN effectively cannot be harmed by this system, and this is key, as it is deliberately avoiding any type of revenue from the auctions of these new registries. Second, the dispute resolution system cannot harm consumers. There is no fashion in which the method of dispute resolution ultimately would lead to higher prices or less innovation or output. Without some clear-cut harm to consumers, it is difficult to fathom any antitrust violation. Third, the dispute resolution system is akin to many types of joint ventures that have been approved by the DOJ in which competitors have collaborated in order to improve how the market works. The ultimate question asked by the DOJ is whether a system helps to make markets function more effectively and certainly the ICANN dispute resolution system, including private auctions, would meet that requirement.

Finally, although Uniregistry or others might be able to envision some other form of dispute resolution system, it is not the DOJ’s role to engage in economic policy engineering and suggest how ICANN should restructure those rules. They simply are obligated to stop conduct that will harm consumers through higher prices or less innovation. The current ICANN dispute resolution system does not pose these risks; that is why antitrust enforcement would be highly unlikely. Any suggestion otherwise is most likely just in Uniregistry’s business interests.