Verisign probed by US Dept of Justice over $135m .web auction

The US Department of Justice is digging into the highly unusual auction of internet extension .web last year, the company that purchased it has admitted.

Speaking on Verisign's quarterly earnings conference call on Thursday, CEO Jim Bidzos told investors that on January 18 the registry had received a civil investigative demand (CID) from the antitrust division of the DoJ "requesting certain information relating to Verisign's potential operation of the .web gTLD."

He refused to give any more information beyond saying the company had already handed over some info and was cooperating with the DoJ going forward. Anything beyond that, he claimed, would be speculation. Asked about the CID, he did however make the point that, in his view, the "industry is extremely competitive."

The auction for .web back in July attracted significant attention when the winning bid hit an extraordinary $135m – three times higher than the previous record price for a top-level domain, and seven times higher than the average auction price for a new internet extension.

Adding to the intrigue, the winning bidder was an unheard-of company called Nu Dot Co which had been accused of being a shell company for a larger corporate entity.

There were seven bidders for .web, all of them well-known companies in the internet infrastructure field, but Nu Dot Co was the only one out of those seven that refused to take part in a private auction where the proceeds would be shared between the companies rather than a public auction where the money would be given to domain name overseer ICANN.

Whiffy

Things grew all the more peculiar when one of the companies, smelling a rat, applied through ICANN's appeal system to halt the auction until more information about who was behind Nu Dot Co could be uncovered. ICANN refused the request in record time. Typically such a request takes ICANN over a month to review and decide upon – this time it took just four days.

The same company, Donuts, then sued ICANN in an effort to get a temporary restraining order on the auction, claiming that ICANN had failed to identify who was really in charge of the company. Both Nu Dot Co and ICANN senior executives then signed affidavits claiming that only the people listed as being Nu Dot Co executives were in charge of the company.

The restraining order was refused, the auction reached a record high [PDF], and less than a week later Verisign effectively admitted it was behind the company when it noted in an SEC filing that it had acquired the rights to a new top-level domain for $130m.

Aside from the suspicious circumstances of ICANN actively pushing the auction to move ahead – and from which it is due to receive over a hundred million dollars (more than its entire annual budget) – the price paid and the unusual way it was acquired has raised serious competition questions.

Dominance

As the operator of the dot-com and dot-net internet registries, Verisign dominates the market for internet domains with 141 million names under its operation. As such, it is ten times larger than its biggest competitor.

Industry experts say that the $135m purchase price for .web, combined with the increasingly competitive market and the very low margins on domain names, makes it unlikely that it will ever turn a profit.

So why did Verisign pay far beyond its market worth? Competitors say it's because the word "web" represents one of the only names that could serve as a real competitor to the dominant ".com" internet extension.

As such, they argue, Verisign abused its dominant market position to pay several times the commercial value of the .web name in order to limit competition. And that is most likely what the Department of Justice is digging into. ®