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One company that aimed to offer an alternative domain naming services has settled a class-action suit for roughly $1.2 million. NeuLevel Inc. is said to have operated an "illegal lottery" in distributing .biz domain addresses.

The settlement, approved on Dec. 13 and recently made public, involves NeuLevel Inc., based in Sterling, Va., and says the company effectively operated a scheme, whereby the highest bidders received the most desirable addresses, ending in .biz.

"The court says this company broke the law. I don't think the law makes a lot of sense in this case, but that's the court's decision," says Esther Dyson, chairman of EDventure Holdings, and former chairman of ICANN, The Internet Corporation for Assigned Names and Numbers, from 1998-2000. She says ICANN's privatization has "too much oversight, rather than too little."

Dyson says the Internet naming business process is "now a competitive market, that's been privatized. It was a good idea to privatize, but that doesn't mean everything is ideal." She went onto say that ICANN's privatization process is "facing teething problems."

Dyson says the issue in this case is the "illegal lottery," adding "the lawsuit is under U.S. law and the case has to do with a company breaking a U.S. law."

NeuLevel has been beset by litigation, and last fall a California judge blocked the company from handing out an estimated 58,000 disputed domain addresses. As a result, NeuLevel paid $1.7 million in refunds to applicants trying to secure the disputed domain addresses.

But the class-action settlement aims to cover the close to 25,000 applicants of domain addresses, who have still yet to get refunds.

In addition to providing refunds to domain address applicants, NeuLevel also agreed to pay $1.175 million to cover plaintiffs' attorney fees.

NeuLevel has registered 750,000 names in the .biz domain, a fraction of the more than 21 million .com domain addresses.

While ICANN is not an enforcement agency, Dyson says that ICANN sets policy, she adds any disputes are to be resolved through the WIPO, or World Intellectual Property Organization.

But in the case of NeuLevel's illegal lottery, a class-action case was brought by David Smith, a Phoenix disc jockey, and several other unhappy applicants, who did not realize they were entering a lottery. While regulatory oversight of the domain address market remains an issue, this case is expected to set a precedent in setting a standard for private companies operating domain address lotteries.