Company believes covenant not to sue is invalid.
New top level domain name company Donuts, through its company Ruby Glen, LLC, filed its opening brief (pdf) last week in an appeal over the .web domain name.
Donuts was one of the applicants for the .web domain name. Nu Dot Co won the auction for $135 million after Verisign struck a deal with it to transfer the ICANN agreement for .web to it after the auction.
The runner up in the auction was Afilias, not Donuts, but Donuts was upset that Nu Dot Co wouldn’t participate in a private auction for the domain name. Instead, Nu Dot Co pushed it to an ICANN “auction of last resort”. Had the auction been private, Donuts would have received about a $22.5 million payoff for losing.
Donuts went through ICANN’s normal appeals channels. When that failed, it sued ICANN in District court. The judge tossed out the suit because the application for new TLDs included a clause that the applicants would not sue ICANN. Donuts argues that this agreement not to sue (called an exculpatory clause) is invalid, as it writes in its opening brief:
The district court’s ruling was in error because: (1) the Exculpatory Clauses, when strictly construed, do not apply to the claims asserted in the FAC; (2) the parties’ agreement involves a matter of public interest, which renders the Exculpatory Clauses void under California common law; (3) the Exculpatory Clauses are void on their face pursuant to California Code of Civil Procedure section 1668 (“Section 1668”) because they release ICANN from intentional misconduct, gross negligence, and intentional or willful violations of the law; (4) Ruby Glen’s second (tortious breach) and fourth (unfair business practices) causes of action specifically allege intentional misconduct, rendering the Exculpatory Clauses void as applied to each claim; (5) the enforcement of the Exculpatory Clauses to the first cause of action (breach of contract) would render the parties’ agreement illusory; and (6) Ruby Glen should have been afforded at least one opportunity by the district court to amend its pleading.
Donuts’ appeal seems to be largely about trying to get a pay off for losing the auction. It didn’t challenge a previous deal similar to what Verisign did with Nu Dot Co when an Automattic-affiliated company struck a deal for .blog. That auction was private and Donuts received a share of the proceeds. Additionally, Donuts had a somewhat similar deal with Rightside (a competitor that it later acquired) to transfer domains after the auctions.
While money is a big reason for challenging the auction, it has the side benefit of delaying the rollout of .web, a competitor to Donuts’ 240 top level domain names.