throbber
Case 2:11-cv-09514-PSG-JCG Document 40 Filed 08/14/12 Page 1 of 17 Page ID #:814
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`Link to docs # 29 & 30
`
`CIVIL MINUTES - GENERAL
`
`Case No.
`Title
`
`Date August 14, 2012
`CV 11-9514 PSG (JCGx)
`Manwin Licensing International S.A.R.L., et al. v. ICM Registry, LLC, et al.
`
`Present:
`
`The Honorable Philip S. Gutierrez, United States District Judge
`
`Wendy K. Hernandez
`Deputy Clerk
`
`Not Present
`Court Reporter
`
`n/a
`Tape No.
`
`Attorneys Present for Plaintiff(s):
`
`Attorneys Present for Defendant(s):
`
`Proceedings:
`
`Not Present
`Not Present
`(In Chambers) Order GRANTING in Part and DENYING in Part the
`Motions to Dismiss
`
`Before the Court are Defendants’ motions to dismiss. Dkts. # 29, 30. The Court finds the
`matters appropriate for decision without oral argument. See Fed. R. Civ. P. 78(b); L.R. 7-15.
`After considering the supporting and opposing papers, the Court GRANTS in part and DENIES
`in part the motions to dismiss.
`
`I.
`
`Background
`
`It is necessary to begin with a brief overview of the functioning of the internet in order to
`understand the specific allegations in this case. The internet is an international network of
`interconnected servers and computers. FAC ¶ 13.1 Each computer or host server connected to
`the internet has a unique identity that is established by an Internet Protocol address (“IP
`address”). FAC ¶ 16. An IP address consists of four numbers between 0 and 255 that are
`separated by periods. Id. The IP address ensures that users are directed to the computer or host
`server for the particular website that they intend to visit. Id. Because strings of numbers are
`difficult to remember, the Domain Name System (“DNS”) was introduced to allow users to
`identify a computer using alphanumeric domain names, such as “YouPorn.com.” FAC ¶ 17.
`Within each domain name, the letters to the right of the last period indicate the Top Level
`
`1 For purposes of these motions to dismiss, the Court accepts Plaintiff’s allegations as true. See
`Leatherman v. Tarrant Cnty. Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 164
`(1993).
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`CV-90 (06/04)
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`Case 2:11-cv-09514-PSG-JCG Document 40 Filed 08/14/12 Page 2 of 17 Page ID #:815
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`Link to docs # 29 & 30
`
`CIVIL MINUTES - GENERAL
`
`Case No.
`Title
`
`Date August 14, 2012
`CV 11-9514 PSG (JCGx)
`Manwin Licensing International S.A.R.L., et al. v. ICM Registry, LLC, et al.
`
`Domain (“TLD”). Id. For example, in the domain name “YouPorn.com,” the TLD is “.com.”
`Id.
`
`Most TLDs with three or more characters are referred to as generic TLDs. FAC ¶ 19.
`Generic TLDs can be sponsored or unsponsored. FAC ¶ 20. A sponsored, generic TLD is a
`specialized TLD that has a sponsor, usually an entity representing a narrower group or industry.
`Id. The sponsor makes policy decisions for the sponsored TLD. Id. For example, the sponsored
`TLD “.museum” is operated for the benefit of museums, museum associations, and museum
`professionals. Id. There are currently twenty-two generic TLDs, fourteen of which are
`sponsored TLDs. FAC ¶ 21.
`
`Each TLD is operated by an assigned organization, referred to as a registry operator or
`registry. FAC ¶ 22. Operating responsibilities include overseeing the sale and allocation of
`domain names in the TLD and maintaining a database directory. Id. Registries, in turn,
`authorize separate companies called registrars to directly sell the TLD domain names to
`businesses or consumers owning and using those names in the TLD. Id. Registries then collect
`fees from registrars, usually on an annual basis. Id.
`
`In 1998, the Internet Corporation for Assigned Names and Numbers (“ICANN”) was
`created to operate the DNS. FAC ¶ 6. ICANN is a non-profit public benefit corporation. Id.
`ICANN’s duties include determining what new TLDs to approve, choosing registries for existing
`or newly approved TLDs, and contracting with the registries to operate the TLDs. FAC ¶ 25.
`According to its Articles of Incorporation, ICANN was established “for the benefit of the
`Internet industry as a whole.” FAC ¶ 27. In its founding documents, ICANN has further agreed
`that it would appropriately consider the need for market competition and the protection of rights
`in names and other intellectual property when approving TLDs and registries. FAC ¶ 29.
`ICANN earns fees from approving new TLDs, new registry operators, and new registrars. FAC
`¶ 32. ICANN also charges registries and registrars fixed annual fees as well as per-transaction
`fees (e.g., registries and registrars pay ICANN a certain amount of money for every domain
`name registered). Id.
`
`In about 2000, Defendant ICM Registry, LLC (“ICM”) first applied to ICANN for
`approval of a new .XXX TLD, intended primarily for adult content. FAC ¶ 34. ICANN rejected
`the application, finding there was no unmet need for the .XXX TLD and that some segments of
`the adult online content industry opposed establishing a .XXX TLD. Id. ICM applied for
`approval of the .XXX TLD again in 2004. FAC ¶ 35. This time ICM applied as a sponsored
`
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`Case 2:11-cv-09514-PSG-JCG Document 40 Filed 08/14/12 Page 3 of 17 Page ID #:816
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`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`Link to docs # 29 & 30
`
`CIVIL MINUTES - GENERAL
`
`Case No.
`Title
`
`Date August 14, 2012
`CV 11-9514 PSG (JCGx)
`Manwin Licensing International S.A.R.L., et al. v. ICM Registry, LLC, et al.
`
`TLD. Id. ICM proposed an organization named the International Foundation for Online
`Responsibility (“International Foundation”) as the sponsoring organization for the .XXX TLD.
`FAC ¶ 36. ICM claimed that the International Foundation represented a significant portion of
`the adult entertainment community. Id. However, the International Foundation was in fact
`created by ICM for the sole purpose of attempting to gain approval for the .XXX TLD and the
`International Foundation did not actually represent any significant portion of the adult
`entertainment community. Id. ICANN once again rejected the application for a .XXX TLD.
`FAC ¶ 37.
`
`After the 2004 rejection, ICM embarked on a campaign to persuade ICANN to approve
`the .XXX TLD. FAC ¶ 39. One facet of this campaign concerned entities that ICM allowed to
`preregister for .XXX domain names. Id. These entities only registered in order to protect their
`names from being misappropriated if the .XXX TLD came into existence. Id. ICM promised
`these entities that it would not claim that these registrations showed support for the proposed
`.XXX TLD. Id. However, ICM then misrepresented to ICANN that these preregistrations
`showed support for the .XXX TLD. Id. In addition, ICM offered various inducements to other
`organizations to support the .XXX TLD, generated fake comments online supposedly showing
`support for the .XXX TLD, submitted misleadingly edited videos and photos from an adult
`entertainment conference to falsely suggest there was limited opposition to the .XXX TLD, and
`touted support from adult entertainment celebrities without disclosing that these celebrities were
`employed by ICM or otherwise receiving benefits from ICM. Id.
`
`As a result of ICM’s misleading campaign, in 2005 ICANN preliminarily authorized its
`president and general counsel to begin negotiating with ICM to establish the .XXX TLD. FAC ¶
`40. After this announcement, certain governmental organizations, including the United States
`Department of Commerce and Department of State, voiced their opposition to the creation of a
`.XXX TLD. FAC ¶ 41. In response, ICM made an intentionally overbroad and baseless
`Freedom of Information Act request for documents regarding the .XXX TLD from these federal
`agencies. FAC ¶ 42. ICM eventually filed a lawsuit over the Freedom of Information Act
`request. Id. Despite the pressure from ICM, ICANN decided in 2006 to stop preliminary
`negotiations and again reject the proposed .XXX TLD. FAC ¶ 43.
`
`In 2008, ICM filed an Independent Review Proceeding, challenging ICANN’s rejection
`of the .XXX TLD. FAC ¶ 44. The Independent Review Proceeding is a non-binding, quasi-
`arbitral process established by ICANN to resolve disputes concerning ICANN’s activities. Id.
`In the Independent Review Proceeding, ICM asserted that ICANN had approved the .XXX TLD
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`Case 2:11-cv-09514-PSG-JCG Document 40 Filed 08/14/12 Page 4 of 17 Page ID #:817
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`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`Link to docs # 29 & 30
`
`CIVIL MINUTES - GENERAL
`
`Case No.
`Title
`
`Date August 14, 2012
`CV 11-9514 PSG (JCGx)
`Manwin Licensing International S.A.R.L., et al. v. ICM Registry, LLC, et al.
`
`in 2005 and could not then reconsider that decision. Id. In the proceedings, ICM again made
`false statements about the level of support for the .XXX TLD. FAC ¶ 45. A three member panel
`presided over the proceeding. FAC ¶ 46. The panel did not judge whether ICM had advanced
`misleading or fraudulent evidence of support for the .XXX TLD, nor did the panel consider
`antitrust or other competition issues related to the .XXX TLD. Id.
`
`In 2010, the majority of the panel, over a dissent, issued a non-binding decision that
`ICANN had determined ICM met the sponsorship criteria for the .XXX TLD in 2005, and could
`not thereafter properly reopen the issue. Id. ICANN then publicly mulled whether to accept the
`majority decision of the panel or to reject it. FAC ¶ 47. ICM threatened to sue ICANN and its
`board of members if ICANN did not adopt the panel’s decision. Id. ICANN then agreed to
`approve the .XXX TLD and sign a registry contract for ICM to operate the .XXX TLD. FAC ¶
`48.
`
`The registry contract allegedly contains several anti-competitive and monopolistic
`provisions. These include a lack of price caps or restrictions of any kind on the prices ICM can
`charge for .XXX registry services. FAC ¶ 56. This is in contrast to other registry contracts
`executed by ICANN for other TLDs which contain express price caps. Id. Before the .XXX
`registry contract was executed, ICM informed ICANN of the higher-than-market prices ICM
`would be charging. Id. Rather than dispute the institution of the non-competitive prices,
`ICANN agreed to profit from these prices. Id. Under the registry contract, ICANN receives an
`enhanced fee from .XXX domain name registrations. Id. This fee is greater than fees charged
`for most other TLDs. Id.
`
`The registry contract lasts for a minimum of ten years and provides that it “shall” be
`renewed subject to an obligation to negotiate certain terms in good faith. Id. This virtually
`unlimited term of the contract will prevent any competitive bidding for renewal of the contract
`and will thus insulate ICM from market restraints or any threat of competition in .XXX registry
`services. Id. The contract also contains provisions which ICM itself proclaims will preclude
`ICANN from approving any other TLDs designated for adult content, such as “.sex” or “.porn.”
`Id.
`
`In November 2011, Plaintiffs Manwin Licensing International S.A.R.L. (“Manwin”) and
`Digital Playground, Inc. (“Digital Playground”) (collectively “Plaintiffs”) filed this action
`against Defendants ICANN and ICM (collectively “Defendants”). Manwin owns and licenses
`one of the largest portfolios of adult-oriented website domain names and trademarks in the
`
`CV-90 (06/04)
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`CIVIL MINUTES - GENERAL
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`Page 4 of 17
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`

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`Case 2:11-cv-09514-PSG-JCG Document 40 Filed 08/14/12 Page 5 of 17 Page ID #:818
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`Link to docs # 29 & 30
`
`CIVIL MINUTES - GENERAL
`
`Case No.
`Title
`
`Date August 14, 2012
`CV 11-9514 PSG (JCGx)
`Manwin Licensing International S.A.R.L., et al. v. ICM Registry, LLC, et al.
`
`world. FAC ¶ 4. Digital Playground is a leader in adult-oriented film making and interactive
`formats. FAC ¶ 5.
`
`Plaintiffs assert five causes of action, alleging various violations of the Sherman Antitrust
`Act, 15 U.S.C. §§ 1, 2 (“Section 1” and “Section 2” of the “Sherman Act”). FAC ¶¶ 93-139.
`Plaintiffs assert three causes of action against both Defendants: a Section 1 claim for conspiracy
`in restraint of trade; a Section 2 claim for conspiracy to monopolize; and a Section 2 claim for
`conspiracy to attempt to monopolize. FAC ¶¶ 93-121. Plaintiffs also assert two causes of action
`solely against ICM: a Section 2 claim for monopolization; and a Section 2 claim for attempted
`monopolization. FAC ¶¶ 122-139.
`
`Defendants move to dismiss the First Amended Complaint under Federal Rule of Civil
`Procedure 12(b)(6). Dkts. # 29, 30.
`
`II.
`
`Legal Standard
`
`a.
`
`Rule 12(b)(6)
`
`Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a defendant may move to
`dismiss a cause of action if the plaintiff fails to state a claim upon which relief can be granted.
`See Fed. R. Civ. P. 12(b)(6). In evaluating the sufficiency of a complaint under Rule 12(b)(6),
`courts should be mindful that the Federal Rules of Civil Procedure generally require only that
`the complaint contain “a short and plain statement of the claim showing that the pleader is
`entitled to relief.” Fed. R. Civ. P. 8(a)(2). Although detailed factual allegations are not required
`to survive a Rule 12(b)(6) motion to dismiss, a complaint that “offers ‘labels and conclusions’ or
`‘a formulaic recitation of the elements of a cause of action will not do.’” Ashcroft v. Iqbal, 556
`U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, (2007)). Rather,
`the complaint must allege sufficient facts to support a plausible claim for relief. See id.
`
`In evaluating a Rule 12(b)(6) motion, the court must engage in a two-step analysis. See
`id. at 1950. First, the court must accept as true all non-conclusory, factual allegations made in
`the complaint. See Leatherman v. Tarrant Cnty. Narcotics Intelligence & Coordination Unit,
`507 U.S. 163, 164 (1993). Based upon these allegations, the court must draw all reasonable
`inferences in favor of the plaintiff. See Mohamed v. Jeppesen Dataplan, Inc., 579 F.3d 943, 949
`(9th Cir. 2009).
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`CV-90 (06/04)
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`Case 2:11-cv-09514-PSG-JCG Document 40 Filed 08/14/12 Page 6 of 17 Page ID #:819
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`Link to docs # 29 & 30
`
`CIVIL MINUTES - GENERAL
`
`Case No.
`Title
`
`Date August 14, 2012
`CV 11-9514 PSG (JCGx)
`Manwin Licensing International S.A.R.L., et al. v. ICM Registry, LLC, et al.
`
`Second, after accepting as true all non-conclusory allegations and drawing all reasonable
`inferences in favor of the plaintiff, the court must determine whether the complaint alleges a
`plausible claim for relief. See Iqbal, 556 U.S. at 679. Despite the liberal pleading standards of
`Rule 8, conclusory allegations will not save a complaint from dismissal. See id.
`
`b.
`
`Elements of Sherman Act Claims
`
`Section 1 of the Sherman Act provides: “Every contract, combination in the form of trust
`or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with
`foreign nations, is declared to be illegal.” 15 U.S.C. § 1. To establish a Section 1 claim, a
`plaintiff must show (1) concerted action among two or more independent entities, (2) an
`unlawful restraint of trade, and (3) antitrust injury. See Kendall v. Visa U.S.A., Inc., 518 F.3d
`1042, 1047 (9th Cir. 2008).
`
`Section 2 of the Sherman Act imposes liability on “[e]very person who shall monopolize,
`or attempt to monopolize, or combine or conspire with any other person or persons, to
`monopolize any part of the trade or commerce among the several States, or with foreign
`nations.” 15 U.S.C. § 2. For a Section 2 monopolization claim, a plaintiff must establish (1)
`possession of monopoly power by defendant in a relevant market, (2) predatory conduct, and (3)
`causal antitrust injury. MetroNet Servs. Corp. v. Qwest Corp., 383 F.3d 1124, 1130 (9th Cir.
`2004). A conspiracy to monopolize claim requires (1) the existence of a combination or
`conspiracy to monopolize, (2) an overt act in furtherance of the conspiracy, (3) the specific
`intent to monopolize, and (4) causal antitrust injury. Paladin Assoc., Inc. v. Montana Power
`Co., 328 F.3d 1145, 1158 (9th Cir. 2003). And an attempted monopolization claim requires (1)
`specific intent to control prices or destroy competition, (2) predatory or anticompetitive conduct,
`(3) a dangerous probability of success, and (4) causal antitrust injury. McGlinchy v. Shell Chem.
`Co., 845 F.2d 802, 811 (9th Cir. 1988).
`
`III.
`
`Discussion
`
`Defendants move on various grounds to dismiss the First Amended Complaint. ICM
`requests dismissal of all five causes of action for failure to allege (1) an antitrust injury, (2) a
`conspiracy between ICM and ICANN to restrain trade or monopolize a relevant market, and (3)
`anticompetitive or exclusionary conduct by ICM. For its part, ICANN argues for dismissal
`because (4) ICANN does not engage in trade or commerce, (5) ICANN acted unilaterally and
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`Case 2:11-cv-09514-PSG-JCG Document 40 Filed 08/14/12 Page 7 of 17 Page ID #:820
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`Link to docs # 29 & 30
`
`CIVIL MINUTES - GENERAL
`
`Case No.
`Title
`
`Date August 14, 2012
`CV 11-9514 PSG (JCGx)
`Manwin Licensing International S.A.R.L., et al. v. ICM Registry, LLC, et al.
`
`did not conspire with ICM, (6) Plaintiffs fail to identify relevant markets, and (7) the Third
`Cause of Action for conspiracy to attempt to monopolize does not exist under the Sherman Act.
`
`The Court will address these seven arguments for dismissal in turn. Ultimately, the Court
`finds, with two exceptions, that the First Amended Complaint adequately pleads antitrust claims.
`The first exception is the Third Cause of Action for “conspiracy to attempt to monopolize,”
`which is not a recognized cause of action. Second, the Court finds insufficient the allegations of
`a relevant market for affirmative registrations of names within TLDs connoting or intended
`exclusively or predominately for adult content. The insufficiency of this market requires the
`dismissal of the Third and Fifth Causes of Action.
`
`a.
`
`ICANN’s Involvement in Trade or Commerce
`
`By its terms, the Sherman Act applies to monopolies or restraints of “trade or commerce.”
`15 U.S.C. §§ 1, 2. The identity of a defendant as a nonprofit or charitable organization does not
`immunize that organization from antitrust liability. NCAA v. Bd. of Regents of Univ. of Okla.,
`468 U.S. 85, 101 n.22 (1984) (“There is no doubt that the sweeping language of § 1 [of the
`Sherman Act] applies to nonprofit entities.”). To the contrary, nonprofit organizations that act in
`trade or commerce may be subject to the Sherman Act. Big Bear Lodging Ass’n v. Snow
`Summit, Inc., 182 F.3d 1096, 1103 n.5 (9th Cir. 1999) (“A nonprofit organization that engages in
`commercial activity . . . is subject to federal antitrust laws.”). Rather than focusing on the legal
`character of an organization, an antitrust inquiry focuses on whether the transactions at issue are
`commercial in nature. Virginia Vermiculite, Ltd. v. W.R. Grace & Co. – Conn., 156 F.3d 535,
`541 (4th Cir. 1998) (“We emphasize that the dispositive inquiry is whether the transaction is
`commercial, not whether the entity engaging in the transaction is commercial.”). “Courts
`classify a transaction as commercial or noncommercial based on the nature of the conduct in
`light of the totality of surrounding circumstances.” United States v. Brown Univ. in Providence
`in State of R.I., 5 F.3d 658, 666 (3rd Cir. 1993). In any circumstance, “[t]he exchange of money
`for services . . . is a quintessential commercial transaction.” Id.
`
`The Court finds the transactions between ICANN and ICM described in the First
`Amended Complaint are commercial transactions. ICANN established the .XXX TLD. FAC ¶
`49. ICANN granted ICM the sole authority to operate the .XXX TLD. FAC ¶ 48. In return,
`ICM agreed to pay ICANN money. FAC ¶ 53. This is “quintessential” commercial activity and
`it falls within the broad scope of the Sherman Act. Even aside from collecting fees from ICM
`under the contract, ICANN’s activities would subject it to the antitrust laws. In Goldfarb v. Va.
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`CV-90 (06/04)
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`Case 2:11-cv-09514-PSG-JCG Document 40 Filed 08/14/12 Page 8 of 17 Page ID #:821
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`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`Link to docs # 29 & 30
`
`CIVIL MINUTES - GENERAL
`
`Case No.
`Title
`
`Date August 14, 2012
`CV 11-9514 PSG (JCGx)
`Manwin Licensing International S.A.R.L., et al. v. ICM Registry, LLC, et al.
`
`State Bar, the Supreme Court concluded that an attorney bar association was not exempt from
`the Sherman Act even where the bar association made no pecuniary gain from its alleged
`conduct. 421 U.S. 773, 788 (1975). The bar association could be liable because it played “an
`important part” in commerce and its anticompetitive activities could exert a restraint in
`commerce. Id. As in Goldfarb, ICANN’s activities play an important role in the commerce of
`the internet and ICANN’s actions could exert a restraint on that commerce.2
`
`In arguing it is not subject to antitrust laws in this matter, ICANN leans heavily on the
`Ninth Circuit’s decision in Dedication & Everlasting Love to Animals v. Humane Soc’y of the
`United States, Inc., 50 F.3d 710 (9th Cir. 1995) (“DELTA”). In DELTA, the Ninth Circuit held
`“[f]idelity to the language of the statute and its interpretation by the Supreme Court forbids
`extension of the Sherman Act to charitable fundraising never envisaged as trade by the common
`law.” Id. at 713. Thus, the activity of the Humane Society in soliciting donations was not trade
`or commerce under the Sherman Act. Id. at 714. ICANN’s reliance on DELTA fails because the
`activities of ICANN set forth in the First Amended Complaint are not solicitations of donations.
`Instead, ICM is contractually obligated to pay ICANN fees for each registration of a .XXX
`domain name. FAC ¶ 53. Neither DELTA, nor any other case cited by ICANN, stands for the
`proposition that the payment of contractually agreed upon fees is not commercial activity within
`the Sherman Act.
`
`2 A case that will be frequently discussed in this order, Coal. for ICANN Transparency, Inc. v.
`VeriSign, Inc., 611 F.3d 495 (9th Cir. 2010), is also instructive on this point. VeriSign did not
`require the Ninth Circuit to decide whether ICANN’s activities were commercial, because
`ICANN was not a defendant in the action when it came before the Ninth Circuit. However, in
`analyzing whether the plaintiff had stated a conspiracy to restrain trade, the Ninth Circuit
`described ICANN’s half of the conspiracy thus: “Beyond ICANN’s decision not to use
`competitive bidding to reach the .com agreement, [plaintiff] has also alleged that ICANN was
`economically motivated to conspire with VeriSign because VeriSign agreed to share its
`monopoly profits with ICANN and to cease its predatory behavior, which had put ICANN in
`financial jeopardy.” Id. at 503. Insofar as ICANN was the other half of the alleged conspiracy
`in VeriSign – a conspiracy that closely parallels the conspiracy alleged in the present matter –
`there is little doubt ICANN could have been liable for the allegations in VeriSign. See also
`Virginia Vermiculite, 156 F.3d at 541 (describing how even labor unions exempt from the
`Sherman Act may be liable for anticompetitive conspiring with non-exempt parties).
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`Case 2:11-cv-09514-PSG-JCG Document 40 Filed 08/14/12 Page 9 of 17 Page ID #:822
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`Link to docs # 29 & 30
`
`CIVIL MINUTES - GENERAL
`
`Case No.
`Title
`
`Date August 14, 2012
`CV 11-9514 PSG (JCGx)
`Manwin Licensing International S.A.R.L., et al. v. ICM Registry, LLC, et al.
`
`ICANN also spends much time recounting its charitable purpose and arguing that it only
`collects fees to carry out this charitable purpose. ICANN Mot. 13:18-18:8. However, these
`arguments are irrelevant to an analysis of whether ICANN’s activities are commercial. See
`Virginia Vermiculite, 156 F.3d at 541 (holding it was “not necessary” that the nonprofit
`defendant “have shared [its co-conspirator’s] alleged anticompetitive motive in entering into a
`proscribed restraint,” but rather, it was sufficient that the nonprofit defendant, “regardless of its
`own motive, merely acquiesced in the restraint with the knowledge that it would have
`anticompetitive effects”); Am. Soc’y of Mech. Eng’rs, Inc. v. Hydrolevel Corp., 456 U.S. 556,
`573-74 (1982) (holding that whether a nonprofit’s agents acted to benefit the nonprofit was
`irrelevant to antitrust liability because the “anticompetitive practices of [the nonprofit’s] agents
`are repugnant to the antitrust laws even if the agents act without any intent to aid [the
`nonprofit]”).
`
`Accordingly, ICANN may be held liable under the Sherman Act for the actions alleged in
`the First Amended Complaint.
`
`b.
`
`Relevant Markets
`
`An antitrust plaintiff must “identify the markets affected by [a defendant’s] alleged
`antitrust violations.” Big Bear Lodging Ass’n v. Snow Summit Inc., 182 F.3d 1096, 1104 (9th
`Cir. 1999). The plaintiff must allege “both that a ‘relevant market’ exists and that the defendant
`has power within that market.” Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038, 1044
`(9th Cir. 2008). A relevant market “can be broadly characterized in terms of the cross-elasticity
`of demand for or reasonable interchangeability of a given set of products or services.” Coal. for
`ICANN Transparency, Inc. v. VeriSign, Inc., 611 F.3d 495, 507 (9th Cir. 2010) (quotation marks
`omitted). A relevant market must “encompass the product at issue as well as all economic
`substitutes for the product.” Newcal, 513 F.3d at 1045 (9th Cir. 2008). The validity of a
`relevant market is subject to factual inquiry and proof, but a court may dismiss allegations of a
`relevant market if the definition is “facially unsustainable.” Id.
`
`Plaintiffs allege two different relevant markets.
`
`1.
`
`Defensive Registration Market
`
`The first market is for blocking services and defensive registrations in the .XXX TLD.
`FAC ¶ 60. Plaintiffs allege owners of trademarks, owners of domain names in other TLDs, and
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`CV-90 (06/04)
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`
`

`
`Case 2:11-cv-09514-PSG-JCG Document 40 Filed 08/14/12 Page 10 of 17 Page ID #:823
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`Link to docs # 29 & 30
`
`CIVIL MINUTES - GENERAL
`
`Case No.
`Title
`
`Date August 14, 2012
`CV 11-9514 PSG (JCGx)
`Manwin Licensing International S.A.R.L., et al. v. ICM Registry, LLC, et al.
`
`owners of other name rights purchase domain names in the .XXX TLD for “defensive or
`blocking purposes.” Id. In other words, these owners seek to prevent others from using their
`names in the .XXX TLD. Id. These owners may wish to protect their names from loss of
`goodwill, prevent consumer confusion, or prevent association with adult entertainment. FAC ¶¶
`60, 62. There is no reasonable substitute for these defensive registration services, because the
`only way to block a name in the .XXX TLD is to register a name in the .XXX TLD. FAC ¶ 61.
`
`ICANN argues this is not an appropriately defined market. ICANN Mot. 22:1-23:12.
`ICANN contends the market fails because there is no market for all .XXX defensive
`registrations. Rather, each .XXX domain name would be its own individual market. Each name
`owner would only be seeking to purchase the rights to block that individual name from being
`used as a .XXX website name. In support of this argument, ICANN primarily relies on two, out-
`of-circuit, district court cases. See Weber v. Nat’l Football League, 112 F. Supp. 2d 667 (N.D.
`Ohio 2000); Smith v. Network Solutions, Inc., 135 F. Supp. 2d 1159 (N.D. Ala. 2001).
`
`The Court finds this argument is foreclosed by VeriSign. In VeriSign, the plaintiff alleged
`a market of “expiring domain names.” VeriSign, 611 F.3d at 501. “Expiring domain names are
`names that have fallen back, or are about to fall back into the registry database as a result of non-
`renewal by their current owners.” Id. The defendant argued this market was insufficient
`because each expiring domain name would be its own market, and there was no such thing as a
`market for all expiring domain names. Id. at 507. In evaluating this argument, the Ninth Circuit
`considered the same out-of-circuit, district court cases raised by ICANN. Id. at 508. The Ninth
`Circuit rejected these cases. Id. The Ninth Circuit held the plaintiff had properly alleged a
`market of all expiring domain names, not just those a particular consumer would like to acquire.
`Id. Similarly, here Plaintiffs allege a market of all defensive registrations in the .XXX TLD, not
`just individual registrations. FAC ¶ 60.
`
`Accordingly, Plaintiffs have adequately pled a relevant market for defensive registrations.
`
`2.
`
`Affirmative Registration Market
`
`The second market described by Plaintiffs is for affirmative registrations of names within
`TLDs connoting or intended exclusively or predominately for adult content. FAC ¶ 66. “There
`is a serious danger that ICM will establish and monopolize such a distinct market because of the
`unique association of the ‘XXX’ name with adult content and the resulting self-reinforcing
`
`CV-90 (06/04)
`
`CIVIL MINUTES - GENERAL
`
`Page 10 of 17
`
`

`
`Case 2:11-cv-09514-PSG-JCG Document 40 Filed 08/14/12 Page 11 of 17 Page ID #:824
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`Link to docs # 29 & 30
`
`CIVIL MINUTES - GENERAL
`
`Case No.
`Title
`
`Date August 14, 2012
`CV 11-9514 PSG (JCGx)
`Manwin Licensing International S.A.R.L., et al. v. ICM Registry, LLC, et al.
`
`pattern that will arise from that association with adult content.” Id. Plaintiffs posit that through
`“network effects” the .XXX TLD could attract more and more providers of adult content and
`consumers of adult content, until a point is reached when .XXX is the exclusive purveyor of
`adult content on the internet.3 Id. Plaintiffs also allege that the registry agreement between ICM
`and ICANN has provisions making it unlikely that any other TLD connoting adult content will
`be approved. FAC ¶ 68. In addition, ICANN has allegedly adopted new rules and procedures
`that will effectively block new entrants into this market by allowing governmental objectors to
`veto any new adult-oriented TLDs. FAC ¶ 70. Lastly, Plaintiffs assert that Congress has
`previously considered, and may consider again, legislation that would force all adult content on
`the internet into the .XXX TLD. FAC ¶ 68.
`
`The Court finds Plaintiffs have failed to adequately plead the affirmative registration
`market. Plaintiffs have not alleged why other currently operating TLDs are not reasonable
`substitutes to the .XXX TLD for hosting adult entertainment websites. To the contrary,
`Plaintiffs allege that Manwin’s own website YouPorn.com is the most popular free adult video
`website on the internet. FAC ¶ 1. It thus appears from the face of the First Amended Complaint
`that an adult content website registered in the .com TLD is an adequate economic substitute for
`an adult content website registered in the .XXX TLD. Thus, because the relevant market also
`includes .com domain names, Plaintiffs have not only failed to include all substitute products in
`their relevant market, but they have failed to allege that Defendants have or will have market
`power in this greater market. See Newcal, 513 F.3d at 1044-45 (the relevant market must
`include all substitute products and defendant must have market power in the relevant market).
`
`In opposition, Plaintiffs argue that although there may be current substitutes to the .XXX
`TLD, there may not be such substitutes in the future because of legislation or network effects.
`Plts. ICANN Opp. 19:10-24:5. However, Plaintiffs point to no authority for the proposition that
`they may adequately allege a market that does not include substitute products that presently
`exist, merely because Plaintiffs allege those substitute products may disappear in the future.
`Indeed, this proposition would entirely negate the requirement that an antitrust plaintiff describe
`
`3 In more detail, Plaintiffs argue: “Viewers looking for adult content will gravitate toward the
`.XXX because the letters uniqu

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