Donuts Loses Another Court Appeal Against ICANN Decision on .WEB

Donuts, through its Ruby Glen subsidiary that was used to apply for the .web new gTLD string, has lost an appeal to the US Court of Appeal [pdf] against ICANN in the ongoing .web dispute over who gets to run it.

Donuts originally sued ICANN for a minimum of $22.5 million over its failed bid for .web. In their claim in the US District Court, Central District of California, Donuts claimed ICANN “willfully and intentionally committed wrongful acts” over Verisign’s financing of Nu Dot Co’s successful $135 million bid at auction for the new generic Top Level Domain. The figure came from the approximate amount each of the six losing applicants would have received if the contention set had been resolved at a private auction, had it gone for the same amount.

Donuts had claimed that ICANN” “intentionally failed to abide by its contractual obligations to conduct a full and open investigation into Nu Dot Co’s admission because it was in ICANN’s interest that the .web contention set be resolved by way of ICANN auction.” Further, they claimed “ICANN deprived Donuts and the other applicants for the .web gTLD of the right to compete for .web in accordance with established ICANN policy. Court intervention is necessary to ensure ICANN’s compliance with its own accountability and transparency mechanisms.”

However the Court of Appeal didn’t bring any joy to Donuts with the appeal court siding with the District Court dismissing Donut’s claims. The Court of Appeal agreed that “the covenant not to sue is not void under California Civil Code section 1668. Ruby Glen is not without recourse—it can challenge ICANN’s actions through the Independent Review Process, which Ruby Glen concedes ‘is effectively an arbitration, operated by the International Centre for Dispute Resolution of the American Arbitration Association, comprised of an independent panel of arbitrators.’ Thus, the covenant not to sue does not exempt ICANN from liability, but instead is akin to an alternative dispute resolution agreement falling outside the scope of section 1668.”

“The district court also properly rejected Ruby Glen’s argument that the covenant not to sue is unconscionable. Even assuming that the adhesive nature of the Guidebook renders the covenant not to sue procedurally unconscionable, it is not substantively unconscionable.” The appeals court also stated that “because Ruby Glen may pursue its claims through the Independent Review Process, the covenant not to sue is not “so one-sided as to shock the conscience.”

“Finally, the district court did not abuse its discretion in denying Ruby Glen leave to amend because any amendment would have been futile.”

So where to now? As Domain Incite notes, ICANN can’t yet go ahead and delegate .web. “The .web contention set is currently “on-hold” because Afilias, the second-place bidder in the auction, has since June been in a so-called Cooperative Engagement Process with ICANN.”

“CEP is a semi-formal negotiation-phase precursor to a full-blown IRP filing, which now seems much more likely to go ahead following the court’s ruling.”

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