IP: Judge rules domain fees illegal

[Dave Farber <farber () cis upenn edu>]

</Categories/Index/0,3,1,00.html?st.ne.ni.htm>
=A0=20
Judge rules domain fees illegal=20
By <mailto:courtm () cnet com>Courtney Macavinta and
<mailto:janetk () cnet com>Janet
Kornblum
Staff Writers, CNET NEWS.COM
April 9, 1998, 11:20 a.m. PT=20


update A federal judge has ruled that a government fund with more than $50
million collected from domain name registrants is an illegal tax because it
was
never approved by <http://www.congress.gov>Congress.


U.S. District Judge Thomas Hogan yesterday ruled in favor of a group of
registrants who called the tax "a license to steal" and sued
<http://www.netsol.com>Network Solutions
<http://www.dbc.com/cgi-bin/htx.exe/squote?source=3Dblq/cnet&ticker=3DNSOL>(=
NSOL)
and the government. Network Solutions has collected the fee--$15 per
year--from
millions of registrants on behalf of the <http://www.nsf.gov>National=
 Science
Foundation since 1995.


"Congress may have intended to grant NSF the authority to collect the
assessment, but it has not yet done so," Hogan wrote.


"It still retains the power to ratify the collection; even at this late=
 date,"
he added. "However, if it wishes to effect such a ratification and permit=
 NSF
to use the Intellectual Infrastructure Fund, Congress must pass legislation
that more explicitly conveys its intentions."


The National Science Foundation is the government body that oversees the
domain
name system. Network Solutions has a contract with NSF to register names
within
the most popular top-level domains, such as ".com," ".net," and ".org."=20


The court is reserving judgment on damages until it is decided whether the
plaintiffs will be awarded the class-action status they have requested. NSF
could be ordered to give refunds to all Net domain name owners who=
 registered
sites with Network Solutions.


"Plaintiffs may be entitled to a refund of the taxes that they have paid,"
Hogan said. "There is, however, a material question of fact as to the
extent of
the refund. Among other issues, it is unclear how much money the=
 intellectual
infrastructure contains."


It was also unclear how the ruling would affect a portion of the money--$23
million--</News/Item/0,4,15256,00.htm>set aside by Congress for the Next
Generation Internet project, an effort to build a high-speed network that=
 was
begun by a consortium of universities and then adopted by the White House.


The infrastructure fund was created in 1995 "to offset government funding=
 for
the preservation and enhancement of the intellectual infrastructure of the
Internet," according to NSF.


In February, Hogan issued an </News/Item/0,4,18809,00.htm>order that
temporarily
froze the fund. And in March, Network Solutions stopped collecting the
registration fee.


Domain name registrants, represented by Washington attorney William Bode,
filed
the <http://www.bode.com/nsi/index.html>lawsuit in October, claiming that=
 the
preservation fee is an unconstitutional tax.


The plaintiffs also argued that NSI's deal with NSF gave the company an
illegal
monopoly on registration for the major top-level domains, such as ".com".=
 The
judge dismissed that part of the complaint.


"On the face, we're pleased with the results," said Cheryl Regan,=
 spokeswoman
for Network Solutions. "He did judge the fund as an illegal tax. The other
nine
counts were dismissed."


Hogan also rejected the plaintiffs' requests that he appoint a special=
 master
in the case; that he order the <http://www.gao.gov/>General Accounting
Office to
perform an audit of Network Solutions; and that he require the firm to=
 return
all intellectual property to NSF when their agreement is terminated.=20


Despite losing on most counts, the plaintiffs applauded the decision. It=
 will
take up to six months for a ruling on the class-action status of the case.


"The court will be asked to certify a class that includes all Internet=
 domain
name registrants that have paid registration or renewal fees," Bode said in=
 a
statement. "When the class is certified, we will ask the court for
restitution."=20