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The Front Running Class Action Suit

In a recent press release, Los Angeles law firm Kabateck Brown Kellner says it’s filed a class action suit against Network Solutions and ICANN for front running. (If you tuned in late, NetSol admits that if you query a domain name on their web site, they will speculatively register it so that it’s only available through NetSol for five days, at their above market price.) This is a very peculiar suit.

For one thing, it’s hard to see how the total class damages would be large enough to be worth a suit. The difference between NetSol’s price and a normal registrar is about $25. In October, the most recent month reported, NetSol added about 55,000 new domains. Let’s wave our hands and say that a quarter of those would have used a cheaper registrar, a rather high estimate, since I believe that most NetSol customers buy their domains as part of a larger package, and this complaint only makes sense for standalone registrations. Multiply that number of registrations by $25 and you get about $300,000 per month, and NetSol’s only been doing this for a few months. The the amount of alleged damages is rather low for a speculative suit like this one.

For another thing, although front running is certainly sleazy and anti-consumer, it’s hard for me to see what’s illegal about it. The press release is not informative and the analogy it makes to car dealers is not helpful.

PACER does not yet have any documents for this case, so when they appear I’ll take a look and see if it becomes any clearer.

By John Levine, Author, Consultant & Speaker

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Enrico Schaefer  –  Feb 27, 2008 6:20 PM

Hey John:  Take a look at the complaint (unfiled but signed) found at this post here.

I originally saw the possibilities under consumer protection laws since there was literally no notice provided that NSI would be ‘reserving’ the searched domains.  But NSI quickly updated its web site with notice. The complaint is drafted on the premise that there is ‘no notice’ even through today’s date. 

I don’t understand how class counsel will show consumer deception after the date NSI began providing notice is, in fact, provided on the web site. It seems they will have to amend their complaint to argue something closer to ‘inadequate notice.’ 

The ICANN counts don’t have any teeth. At a minimum, I expected an argument that NSI was violation of registrar accreditation agreement Para 3.7.4 (I suppose the court could put its own spin on the ambiguous language) and that ICANN had a duty to enforce same. But the implied argument is that the AGP is inherently unlawful.

As always, I’ll be interested in your thoughts…

John Berryhill  –  Feb 27, 2008 7:03 PM

The ICANN counts don’t have any teeth. At a minimum, I expected an argument that NSI was violation of registrar accreditation agreement Para 3.7.4

Even so, the RAA is pretty clear on there being no third party beneficiary rights under it. 

5.10 No Third-Party Beneficiaries. This Agreement shall not be construed to create any obligation by either ICANN or Registrar to any non-party to this Agreement, including any Registered Name Holder.

So even if ICANN is not enforcing some interpretation of the RAA, what’s the traction for a third party complaint?

John Levine  –  Feb 27, 2008 7:14 PM

I don’t purport to be a lawyer, but I’m pretty sure that if I were a lawyer, I would know that clause 5.10 precludes third parties from suing for violations of the RAA, which has nothing to do with the charge this case makes of aiding and abetting fraudument concealment.

John Levine  –  Feb 27, 2008 7:17 PM

Sigh. Make that aiding and abetting fraudulent concealment.  The fraudulent concealment charge seems extremely weak on its own, but that’s for another message I’ll post shortly.

Enrico Schaefer  –  Feb 27, 2008 7:29 PM

I am not suggesting that this suit is going to last very long very it gets tossed. I believe it will be dismissed early.

Of course, a judge has a lot of latitude to apply or make exceptions.  These guys are going to have to make new law, convince the court to ignore contract terms or convince the judge to carve out exceptions. They could make some sort of public policy argument to overcome the RAA third-party clause (plaintiff is in California after all:-).  But overall, this class action is facing some seemingly insurmountable hurdles. 

ICANN’s alleged “aiding and abetting fraudulent concealment” makes no sense at all since they had not involvement in or control over notice and, thus concealment.

Dan Campbell  –  Feb 27, 2008 9:07 PM

Wouldn’t the class in the action be other registrars rather than (or at least in conjunction with) the actual people who registered domains?  The other registrars, like the one I usually use who didn’t get my recent business because of the NSI policy, should be the ones that really upset and really lose significant money rather than the $25 an individual may lose.  Or, are many other registrars doing the exact same thing as NSI?  And, is it just up to individual registrars to file suit against NSI directly if they feel they’ve been cheated, and it isn’t a class action suit per se?

(As you can see, I am also no lawyer.)

John Levine  –  Feb 28, 2008 12:18 AM

Dan Campbell said:

Wouldn’t the class in the action be other registrars

A court would be unlikely to certify them as a class.  The point of a class is that it’s impractical to identify all of the individual plaintiffs, but the registrars are easy to find, since they’re all on ICANN’s list.

Also, I expect that many registrars would decline to participate in such a suit, both because it’s legally bogus, and because they have their own reasons for liking the AGP.

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