For the first few days after NSI instituted he so-called 'Reserve Policy' there was nothing on its web site that told users of its services that it would be 'reserving' all searched domains. I posted that NSI May Be Legally Liable For Alleged Front Running, including various Consumer Protection legal theories could have come into play. 

Essentially, NSI’s web site policies did not initially provide notice to consumers that NSI was reserving domains searched through its site when it started with its Reserve Policy. Notice to consumers was non-existent. 

NSI admitted that it registered / held the domains at issue, but suggested that it was a security measure to protect consumers.  Of course, this supposed measure precluded the registrant from registering the domain with any other registrar at a cheaper price and caused a lot of confusion among consumers who simply thought the domain had become unavailable.

Initially, NSI was also putting up standard parking pages on all reserved domains, which effectively meant it was cybersquatting on any searched domains that had trademark protection. NSI quickly killed this feature as a result of public pressure.

More importantly, NSI quickly updated its web pages to inform users that it would be reserving all domains searched though its availability search services. I did a comprehensive analysis of the new notice provisions on the NSI web site in a posted titled 'NSI's New Domain Search 'Reserve' Policy Continues to Evolve.' I concluded that the notice, while no doubt unread by most consumers, was likely legally adequate to avoid consumer protection liability.

It will be interesting to see how counsel is planning on holding ICANN in as a class action defendant. I assume they are alleging that the reserve policy is a violation of ICANN's registrar accreditation agreement which ICANN is not enforcing. I have seen some commentary about: 

3.7.4 Registrar shall not activate any Registered Name unless and until it is satisfied that it has received a reasonable assurance of payment of its registration fee. For this purpose, a charge to a credit card, general commercial terms extended to creditworthy customers, or other mechanism providing a similar level of assurance of payment shall be sufficient, provided that the obligation to pay becomes final and non-revocable by the Registered Name Holder upon activation of the registration.

It is unclear if NSI paid they fee required above as the de facto registrant (in anticipation of transferring the domain to the person who originally searched for domain availability) and planned on obtaining a refund at the end of the 5 day grace period.  I can not imagine that an availability search by an unknown consumer constitutes "a reasonable assurance of payment" under the policy. NSI must have been paying the upstream registration fee as part of this program.

lawyers at Kabateck Brown Kellner are tossing

Our British friends are going to love that.

It is unclear if NSI paid they fee required above

3.7.4 doesn't require that anyone pay a fee.  It says that a registrar shall not "activate" a domain registration unless it has reasonable assurance of payment.  So (a) it applies to "activating" a "Registered Name", not "registering" a domain name, and (b) it doesn't require anyone to actually pay anything to anyone.

John:  That is the way I have seen it read as well.  But I also dug up a post I recently read at Jay's Domain Tools Blog recently where ICANN allegedly indicated that payment was required.

There is a long discussion of the issue of "reasonable assurance of payment" on a message thread at ICANN titled "OUTCOMES REPORT OF THE GNSO AD HOC GROUP ON DOMAIN NAME TASTING," without definitive answer, here

Perhaps the issue is more focused on what constitutes "payment assurances" rather than whether money if fact changes hands.

John:  What happens on the technical side to define 'activation' under the ICANN policy which would potentially trigger the clause?

Here is a quote from the attorney who filed the class action:

Kabateck said it was unclear how many plaintiffs would ultimately particapate in the lawsuit and therefore damages sought at this point are unknown. He estimates, though, that the number of plaintiffs is potentially in the thousands, and that the suit will seek a refund of about $25 per plaintiff, or the amount they allegedly were overcharged.

"In our mind, this is a very subtle form of price-fixing," he said. "People don't know how long the domain is going to be held up for, and people are going to be scared into paying a higher price now. They should have notified the customer. People should know they have other options."

As to why ICANN was brought into the suit and how much he felt ICANN was liable for, Kabateck said the suit was not seeking monetary damages from ICANN. "It's not so much that they have monetary liability. We simply want a declaration that they can't set the rules for how long you can or can't lock up domain names."

When asked who should set the rules for that, Kabateck said that should be the government's responsibility.

Though ICANN is a quasi-independent nonprofit organization, it was established by the US Dept. of Commerce to act on behalf of the government. Though the United Nations has pressured its cause that ICANN be placed under UN control, the contract between ICANN and the US was extended until 2011. Nevertheless, some argue ICANN lacks the authority to decide domain policy.

Kabateck says ICANN lacks such authority and also denies that ICANN is a government body.

HMMM. I am not sure these guys have the expertise in domain registrations to pull off this class action business.  There seems to be some major holes in their legal theories and a misunderstanding about how ICANN works. In their press release, they made an analogy about used cars which did not fit very well.

"Imagine if you asked a car dealer if they had a black convertible and were then forced to buy the car from them. Would you get a good deal? Each time someone asks Network Solutions about a domain name, the firm creates a monopoly for itself, forcing consumers to pay the price they demand," said Brian Kabateck, lead counsel in the class action and Kabateck Brown Kellner's Managing Partner.

As noted by Jason Lee Miller over at WebProNews (see above link), it would not take much of a defense attorney to poke holes in that one.

It wouldn't take the brightest defense attorney to argue against that logic. Network Solutions does release the domain after four days, so no one is "forced" to buy anything. Network Solutions said at the ICANN hearing also that if customers called them they would delete the domain upon request.

They may be "forced" to wait, or be inconvenienced, though, and the ethics of Network Solutions' practice is still in question.

At this point, given the fact that NSI provides notice on its web site about its registration policy for anyone using its search tools, it is about ethics and market forces, not class action lawsuits.

I'm glad I wasn't the only one who didn't get the used car analogy!

I'd like to know how to get on the plaintiff's list because I got burned by this recently and want my $25 back!

NSI has a very good search engine that everyone uses to find domain availability before they go to their very much less expensive registrar.  Perhaps that was a wise move on NSI's part, but locking up a domain certainly isn't right.  Most people didn't realize this was going on, had no idea about the 4 day lockup period, etc.

As for "activation", yes, that is a good question.  Because you can own a domain without it being hosted anywhere or visibile on the Internet.  It is just a domain at that point, just a few words and a dot more or less.  So by "activation", does that mean "no longer available in the database" or on record with some registrar as having been acquired by a customer (whether paid for or not)?

I have posted a copy of the complaint which I found posted somewhere on-line (sorry but I could not retrace my steps).  The interesting thing is that we have searched the court docket and no such action exists in the U.S. District Court, Central District of California as stated by class counsel.  Despite a press release by the law firm acting as class counsel that the complaint was filed, we are unable to confirm that fact.  Regardless, we have posted a version of the complaint and analyzed the counts here.

I know this will disappoint many but, in my opinion, there is no viable liability claim against ICANN and NSI's liability is built on the false premise that no notice of the reservation policy existed on the network Solutions web site as of January 31, 2008. 

I conclude that the best case scenario for Plaintiff is a judge who does not understand the internet or an amendment of the pleading to somehow argue that the notice Network Solution provided about its reservation policy (found here) was somehow inadequate (given the obvious fact that neither class plaintiff nor class counsel noticed it, there might by an open windowthere) as opposed to the erroneous argument that notice was non-existent.

Read the analysis here.

NSI has a very good search engine that everyone uses to find domain availability before they go to their very much less expensive registrar.

If the point is to feel bad about freeloaders, then you just as well point out that Verisign has a very good registry that people use to try out domain names for a couple of days before they decide whether or not to pay for it.

"Free services" - Good when NSI does it, bad when Verisign does it.

But I also dug up a post I recently read at Jay’s Domain Tools Blog recently where ICANN allegedly indicated that payment was required.

Yeah, and if you believe that one party to a contract gets to authoritatively decide what the contract means, all I can say is that I'd love to enter into a contract with you.

It is typically understood to mean that the registrar's credit with the registry is sufficient.

The meaning of this particular clause has been a popular topic at registrar constituency meetings for several years.  The bottom line is that there are differing interpretations of it.  It is in some ways another drafting trainwreck.  For real fun, you might consider that ICANN has also distinguished between the terms "Registered Name Holder" as used in the RAA and "Registrant" as used in other documents. 

As you know, the use of different words means that different, and potentially overlapping, things are meant by those words.  My understanding is that the NSI held names were in some sense registered to NSI, so I think it's pretty certain that NSI can claim it had reasonable assurance of payment by and to itself as the "Registered Name Holder" as that term is used in the RAA.

Again, the hazard is reading things as some variety of "what I think it says" or "what I want it to say" instead of "what it says".  It says what it says, regardless of what ICANN thinks it says, what NSI thinks it says, or what these class action lawyers think it says.  That happens a lot with ICANN contracts, and is something of a brain virus when technical folk run up against legal folk.

But it is nice to see non-legal folks rejoicing to the tune of "Hooray, a couple of lawyers are trying to make a pile of money" since they aren't familiar with how class actions work as a practical matter.  This one is a real dream since, aside from the fact of how one accounts the "damage" here (which is primarily equitable and not legal), most of the class is unidentifiable.

So by “activation”, does that mean “no longer available in the database” or on record with some registrar as having been acquired by a customer (whether paid for or not)?

Figuring out and applying the RAA - a game the whole family can play!

Welcome to the club.