Dewitt Comments on .XXX Antitrust Lawsuit

Nov 22, 2011 9:15 AM PST

Antitrust is not a topic that receives much conversation in the adult industry — in fact, it hasn’t had any conversation insofar as anyone can remember. Well, it now has surfaced in the lawsuit by Manwin and Digital Playground against ICM Registry, an action that seeks to bring down the goldmine .XXX top-level domain. The suit also targets ICANN.

What are antitrust laws? You need to go back to the Industrial Revolution to understand them. Back then, Standard Oil and U.S. Steel were classic examples of businesses that had used their size to monopolize their respective industries. They did so by buying up their competitors and freezing them out of the market.

Understand this: There is nothing automatically wrong with a monopoly.

For example, if you obtain a patent on some invention, you are entitled to a 20-year monopoly on the invention by virtue of the patent. Another example is a company that, by doing nothing more than good business practices, obtains a monopoly on some category of products. Xerox did a good job of that.

But the Standard Oils of the day weren’t playing fair, or, at least Congress didn’t think so. They used their monopoly power and wealth to buy up competitors, to threaten them and/or to price them out of the market.

There are many examples of antitrust violations; and not all of them require monopoly power.  For example, everyone knows that price fixing is illegal, although not too many of us know why. The reason is that competitors getting together and agreeing upon (artificially) high prices for their competing products stifles competition. Gas stations all get together and agree on prices for regular and super — higher prices than what would result if the gas stations were in open competition with each other. That is illegal because it isn’t fair.

Another example is a huge chain of gas stations that, when faced with a new competitor opening up across the street from one of them, lowers the price at their across-the-street gas station until the new competitor goes out of business.

The suit against ICM and ICANN situation is interesting.

The plaintiffs have hired big guns in the business/entertainment litigation world, a high-powered (and expensive) Los Angeles-based firm, Mitchell Silverberg & Knupp LLP.

Their complaint essentially is that ICM/ICANN has a monopoly, which is OK; but that they used that monopoly power to engineer the .XXX stickup. The ICM/ICANN monopoly probably was necessary. After all, there needs to be some central repository of domain names, or at least arguably so. However, that isn’t the complaint.  

The protest is that the .XXX domain is a stickup. 

The best argument seems to be that it forces owners of trademarks to acquire — at extortive expense — defensive domain names in .XXX. The example given in the complaint is Mercedes Benz, which would be compelled to acquire to prevent anyone else from using it (although one would think a trademark dilution claim could stop that; but at much greater cost).  

A better example might be a non-famous mark that is not protected by the anti-dilution laws and whose owner might not have the resources to buy defensive domain names, much sue to protect a good reputation.

The latter example applies to most everyone in the difficult adult-video industry. If a struggling video adult company, “WXYX Pictures,” is enjoying success with its website, the last thing it needs is to be stuck with defensively spending the money to acquire, especially when WXYZ is doing just fine with the domain name that it is using.  And everyone knows how easy it would be for someone to hide in the weeds, setting up – and laughing while WXYZ Pictures squirms to try to do something about it.

That said, the nub of the complaint is that ICM and ICANN used monopoly power to engineer a stickup here, akin to how Standard Oil engineered a stickup by buying up all of its competitors.

It will be interesting to learn how this plays out.   

Clyde DeWitt is a Los Angeles and Las Vegas attorney, whose practice has been focused on adult entertainment since 1980. He can be reached at Readers are considered a valuable source of court decisions, legal gossip and information from around the country, all of which is received with interest. Books, pro and con, are encouraged to be submitted for review, but they will not be returned. This column does not constitute legal advice but, rather, serves to inform readers of legal news, developments in cases and editorial comment about legal developments and trends. Readers who believe anything reported in this column might impact them should contact their personal attorneys.

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