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.Biz Lottery Losers File Class Action Suit

Less than 30 days after opening .biz up for business, a class action lawsuit has been filed against its registry owners, NeuLevel, the Internet Corporation for Names and Numbers (ICANN) and a bevy of registrars, for running an illegal criminal lottery in the state of California.

According to the lawsuit, one of the claimants, David Smiley of Skyscraper Productions LLC, wanted to file the domain, www.comicbook.biz in the new domain space, one of seven new domain spaces approved by ICANN last November to ease congestion in the popular .com and .net extensions.

But, according to lawyers, Smiley and many other people around the U.S. didn't know their chances of actually getting the domain name, a deceptive practice lawyers say is misleading and illegal.

The lawsuit asks the courts to:

  • File an injunction against all the defendants listed;
  • Restitution for every application fee filed;
  • Pay for court costs and attorney's fees; and
  • Any other relief the Court feels necessary.

NeuLevel, managers of the .biz domain name registry, set up a lottery process that started June 27 for people fighting to get the same domain name in what they considered the most fair and objective method: randomizing the multiple applications and picking one winner.

The fledgling registry, hoping to make a slew of money in the process, also stipulated that entrants could file as many applications as they wanted, as long as they ponied up $2 for each application form.

Enter the registrars, who mounted an impressive bulk email distribution (some would say spam) campaign to Internet users worldwide. Many registrars marked up the entry fee to $5 to get in on the application frenzy, telling .biz registrants that the more applications they filed, the better chance they had of winning the domain of choice. While that is certainly true, since NeuLevel promised a randomized process, there was bound to be losers. What's more, none will get a full refund of the money they invested into their failed domain name bid. NeuLevel has already said it will not refund its application fee for losing entrants.

Derek Newman, one of a group of lawyers representing .biz registrants, said they made the filing in Los Angeles because of the higher likelihood of victory in California, which will establish precedence throughout the U.S. and possibly worldwide.

"California statutes are the most broadly defined," Newman said. "In other words, the relief you can get in California is just as good or better than the relief you could get in any other state. No other state provides better relief, which is why California is such a good venue for this lawsuit."

Newman declined to say when or if the legal team would file in other states, saying they weren't ready to discuss their overall strategy. He did say, however, that lottery charges can be filed in every state and that unfair competition laws, which also incorporate criminal charges, is applicable in most states.

From the beginning, NeuLevel and its accredited registrars have emphasized that there are no guarantees that the registrants will get their domain name of choice in the event of multiple requests.

That's unfortunate, because many states (including California, where the lawsuit was filed) hold that an illegal lottery is any contest, game, or enterprise of chance that involves a prize. In this case, the prize was the contested domain name.

"Simply because they tell you it's a lottery up front doesn't mean that what they are doing is lawful," Newman explained. "When you walk (into the application process) blindly and it says you have a chance to get the domain, but you don't know what those chances are, that's misleading. They have a duty to disclose to you what your chances are. Even if the lottery's legal, it's still unfair because of the false, deceptive and misleading communications surrounding the lottery.

Newman pointed out that these unfair practices also open up the possibility of investigation by the Federal Trade Commission (FTC), since it deals with these unfair and deceptive advertising practices against consumers.

Barbara Blackwell, a spokesperson for NeuLevel, said the lawsuit is completely without merit and filed as an attempt to derail the successful introduction of .biz.

"NeuLevel stands completely behind the launch process of .biz, which provides protections for all trademark owners and discourages cybersquatting and speculation," she said. "We believe that the .biz domain name selection process is the most fair and equitable way to distribute domain names during the launch of the first truly global business-centric space on the Internet."

The lawsuit has many in the industry wondering how NeuLevel attorneys even signed off on the lottery process in the first place, knowing the potential pitfalls of the lottery process.

Larry Erlich, president of DomainRegistry.com, Inc., a registrar based in Bensalem, PA, said he is now very glad he didn't start accepting applications for .biz domain extensions when it opened for business last month.

"We haven't been accepting applications because we didn't know how the whole process works," Erlich said. "I talked to their lawyers last month about it and asked for papers explaining the legality of the lottery process, but they never got back to me about it.

(This lawsuit) has really thrown a monkey wrench into things," Erlich continued. "This certainly seems to indicate an illegal lottery. It's no different than you taking your TV and selling raffle tickets for it."

One of the registrars listed in the class action suit was Tucows, Inc. In addition to pointing out Tucows, the lawsuit points the finger at any approved registrar accredited and listed on NeuLevel's Web site.

Joanna Beckett, Tucows spokesperson, spoke about what was on the minds of many of the other registrars listed.

"This lawsuit isn't an issue for us, this is an issue for NeuLevel to deal with," she said.

ICANN, however, may face increased scrutiny from the courts over its decision to accept NeuLevel's bid to manage the .biz domain. In addition to the $50,000 fee every applicant made to the governing body of the U.S. domain root, ICANN directors were to determine how the potential registries would carry out the registration process. It's unlikely the entire board of directors, and staffers to boot, could overlook the potential landmine NeuLevel's registration process entailed.

ICANN officials were unavailable for comment on the lawsuit or its selection process.

Newman said he hasn't heard from any of the parties listed in the suit and never contacted them before filing, saying actions of this type can never be settled amicably. He said the defendants now have time to review the documents during this discovery period, which could take up to a year.

"The issues here are not terribly complicated, so I hope that it takes a lot less than a year," Newman said.