This article is from ZDNN (http://www.zdnet.com/zdnn/).
Visit this page on the Web at:
http://www.zdnet.com/zdnn/content/msnb/0203/281457.html
---------------------------------------------------------------------
Court: Domain fees appear illegal
WASHINGTON, Feb. 2 - A federal court Monday issued a temporary
injunction barring the federal government from spending some $50
million it has collected from the registration of Internet domain
names. That money forms a pool of funds intended to be spent for
improving the Internet. On Monday, the court sided with the plaintiffs
in a lawsuit that claims those fees constitute an illegal tax.
The money is part of a so-called "intellectual infrastructure fund,"
which is funded by 30 percent of all fees paid to register an Internet
domain name. Initial domain names cost $100; renewal of domain names
is $50 annually. The remainder of registration fees goes to Network
Solutions Inc. (NSOL) to cover its cost of maintaining the
registration service.
Network Solutions operates as a monopoly, stemming from a National
Science Foundation government grant. That grant is supposed to end in
March; the White House issued a proposal Jan. 30 that would move
domain name registration into the private sector.
In October, six domain-name holders filed suit in U.S. District Court
alleging that the National Science Foundation had no authority to
allow Network Solutions to collect any money in excess of its cost of
providing the registration service. Further, the suit charged, the 30
percent set-aside amounts to an unconstitutional tax.
Judge Thomas Hogan said Monday that the plaintiffs "have made a
significant showing that the (intellectual infrastructure fund) is an
illegal tax."
Hogan said there is "no litmus paper onto which the Court can drop a
regulatory assessment such as this one, hoping to see whether the
paper comes up blue for tax or pink for fee." Justice Department
lawyers had argued in court that the domain-name registration fee was
exactly that, a fee, because it was paid voluntarily and therefore
couldn't be considered a tax.
But Hogan disagreed, writing that "there is no dispute that the
assessment (registration fee) is involuntary - it is automatically
charged to every domain registration."
In 1995 Network Solution's contract was amended to allow it to begin
collecting fees for the registration process, which it had done for
free since 1993, when its contract was issued. The registration fees
set off a firestorm of criticism in the Internet community. The
Intellectual Infrastructure Fund was supposed to be used for the
betterment of the Internet for the community as a whole; however, no
plan has ever developed on how to spend the money, which is held in
escrow.
Because no plan had been developed to spend the fund money, Congress
rushed into the vacuum late last year and simply appropriated some $23
million. Congress earmarked that money to be spent on the Next
Generation Internet project, which President Bill Clinton highlighted
in his recent State of the Union speech.
"Under federal law, no independent executive agency - such as the
National Science Foundation - can collect fees that exceed the cost of
providing the service they are administering," said William Bode,
attorney for the plaintiffs. "NSI, the agent of NSF, spends less than
$5 to register domain names, yet it charges a registration fee of $100
and renewal fees of $50 per year," he said.
Network Solutions did not return calls for comment.
Bode also argued that only Congress has the authority to tax and that
no such authorization has taken place. The Justice Department argued
that because Congress appropriated the $23 million from the
infrastructure fund, it had essentially ratified the tax.
Bode argued that ratification of a tax can't take place in
authorization bills. Judge Hogan agreed, noting that ratification is a
legislative function and that "it is well known that Congress does not
normally legislate through appropriations bills." Hogan added:
"Congress may have intended to grant NSF the authority to collect the
assessment, but it has not effected a legal ratification."
The suit also is seeking antitrust damages, alleging that the NSF
violated the competition in contracting act when it allowed Network
Solutions to begin collecting the $100 fee. Bode says the competition
act requires the NSF to re-bid a new contract, not simply amend it.
The temporary injunction "paves the way for our motion, which we'll
file in two days, to require NSI to return all registration renewal
fees which exceed the cost of providing that service," attorney Bode
said. "We think that cost [to NSI for the registration process] is
significantly less than $10, probably $2 to $3," he said, "which would
mean that there would be a refund of approximately $100 million in our
judgment."
---------------------------------------------------------------------