Court of Appeals agrees that covenant not to sue is valid.
The United States Court of Appeals for the Ninth District has ruled against top level domain name company Donuts 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 (NASDAQ: VRSN) struck a deal with it to transfer the ICANN agreement for .web to it after the auction.
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 argued that this agreement not to sue is invalid.
The Appeals Court agreed with the lower court that the covenant not to sue was valid (pdf) in a decision published yesterday.
.Web still doesn’t have a green light, however. Afilias was the runner-up in the .Web auction and it is fighting the auction result through ICANN’s appeal processes.
While Donuts was upset about missing out on a payday by losing the auction, Afilias was upset that it didn’t win. Regardless of the outcome, both may benefit and get some satisfaction out of the delay they are causing Verisign. After all, Verisign did all it could to delay the launch of new top level domain names.
It will be interesting to see if Donuts’ strategy around .web changes when Akram Atallah takes over as CEO. Either way, Donuts’ fight against .web might be over. It will probably just hand the baton off to Afilias.