Thomas, William v. Network Solutions

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 25, 1999 Decided May 14, 1999

No. 98-5502

William Thomas, et al.,

Appellants

v.

Network Solutions, Inc. and

National Science Foundation,

Appellees

Appeal from the United States District Court

for the District of Columbia

(97cv02412)

William H. Bode argued the cause for appellants. With

him on the briefs were James M. Ludwig and Daniel E.

Cohen.

Lisa Goldfluss, Assistant U.S. Attorney, argued the cause

for appellee National Science Foundation. With her on the

brief were Wilma A. Lewis, U.S. Attorney, R. Craig Law-

rence, Assistant U.S. Attorney, and Lawrence Rudolph, Gen-

eral Counsel, National Science Foundation.

Michael L. Burack argued the cause for appellee Network

Solutions, Inc. With him on the brief were Lloyd N. Cutler,

C. Loring Jetton, Jr., Matthew P. Previn, and Philip L.

Sbarbaro.

Before: Randolph, Rogers, and Garland, Circuit Judges.

Opinion for the Court filed by Circuit Judge Randolph.

Randolph, Circuit Judge: This is an appeal from the

judgment of the district court dismissing a complaint filed

against the National Science Foundation ("NSF") and its

private contractor, Network Solutions, Inc. Plaintiffs are

individuals and entities who registered Internet domain

names through Network Solutions, Inc., paying a one-time

registration fee and yearly renewal fees thereafter, a portion

of which the company paid over to NSF according to the

terms of a government contract. The complaint alleged,

among other things, that NSF had imposed and collected an

unconstitutional tax, that Network Solutions had violated the

antitrust laws, and that the amount of the fees charged

pursuant to the contract exceeded a limitation imposed by

statute.

I

A

The Internet, "an international network of interconnected

computers," Reno v. ACLU, 117 S. Ct. 2329, 2334 (1997),

developed from the ARPANET, a network the United States

military created in 1969 to link its computers with those of

defense contractors and universities. See 63 Fed. Reg. 31,741

(1998). The ARPANET, which no longer exists, served as a

model for similar nonmilitary networks. See id.; see also 63

Fed. Reg. 8826 (1998). These networks eventually linked

with each other and coalesced into the backbone of the

modern Internet, see 63 Fed. Reg. at 8826, enabling tens of

millions of people to communicate with one another and to

gain access to vast amounts of information from around the

world, see ACLU, 117 S. Ct. at 2334.

Internet use has grown dramatically in the past two dec-

ades. The number of networked "host" computers--those

that store information and relay communications--increased

from about 300 in 1981 to approximately 9.4 million in 1996.

See id. Roughly 60 percent of these host computers are

located in the United States. See id. About 40 million people

used the Internet in 1996, a number expected to rise to 200

million this year. See id.

Individuals generally obtain access to the Internet through

these host computers, each of which has a numerical address,

or Internet Protocol number, such as "98.37.241.30," that

allows other host computers to identify and locate it.1 See 63

Fed. Reg. at 8826; see also 63 Fed. Reg. at 31,741. When

the Internet was in its infancy, Internet Protocol numbers

were assigned and maintained by the late Dr. Jon Postel,

then a UCLA graduate student working under a contract

between the Defense Department and the university. See 63

Fed. Reg. at 31,741. When Dr. Postel moved from UCLA to

the Information Sciences Institute at the University of South-

ern California, he continued to maintain the lists pursuant to

contracts with the Defense Department. See id. As the lists

grew, Dr. Postel delegated certain aspects of the list mainte-

nance to what eventually became known as the Internet

Assigned Numbers Authority. See id.

Because many numerical sequences are difficult to remem-

ber, the Internet community created a system allowing an

__________

1 An Internet Protocol address consists of four numbers, each

between 0 and 255, separated by periods. See PGMedia, Inc. v.

Network Solutions, No. 97 Civ. 1946, slip op. at 3 (S.D.N.Y. Mar. 16,

1999); see also Josh A. Goldfoot, Note, Antitrust Implications of

Internet Administration, 84 Va. L. Rev. 909, 913 (1998). The first

number signifies the computer's geographic region; the second

number a specific Internet Service Provider; the third a specific

group of computers; and the fourth a specific computer within that

group. See G. Peter Albert, Jr., Eminent Domain Names: The

Struggle to Gain Control of the Internet Domain Name System, 16

J. Marshall J. Computers & Info. L. 781, 784 (1998).

Internet computer to be identified by a "domain name." See

62 Fed. Reg. 35,896 (1997). The domain name system is a

hierarchy. See 63 Fed. Reg. at 8826. Top-level domains are

divided into second-level domains, and so on. See id. More

than 200 national, or country-code, top-level domains--e.g.,

".us" for the United States, ".pa" for Panama, ".uk" for the

United Kingdom, and so on--are administered by their corre-

sponding governments or by private entities with the govern-

ment's permission. See 63 Fed. Reg. at 31,742. A small set

of generic top-level domains carry no national identifier, but

denote the intended function of that portion of the domain

space: ".com" for commercial users; ".org" for non-profit

organizations; ".net" for network service providers; ".edu"

for educational institutions; ".gov" for United States govern-

ment institutions; ".mil" for United States military institu-

tions; and ".int" for international institutions. See 63 Fed.

Reg. at 31,742.

Domain names--e.g., bettyandnicks.com--consist of at least

two groups of alphanumeric characters, each known as a

string, separated by a period or dot. The last string--the

farthest to the right--denotes the top-level domain. The

second-to-last string is the second-level domain name and

identifies the person's or organization's Internet computer

site. See Albert, supra note 1, at 783. Each string may

contain up to 63 characters but the overall domain name must

be less than 256 characters. See PGMedia, Inc., No. 97 Civ.

1946, slip op. at 3.

For the domain name system to function, each domain

name must be unique and correspond to a unique Internet

Protocol number. See 63 Fed. Reg. at 8826; see also Gold-

foot, supra note 1, at 913. A new user who wishes to have an

Internet site with a domain name address first obtains an

Internet Protocol number (e.g., 1.23.456.7). See PGMedia,

Inc., No. 97 Civ. 1946, slip op. at 5. The user then registers a

domain name and it becomes linked with that Internet Proto-

col number. See id. at 5-6.

Before using a domain name to locate an Internet computer

site in "cyberspace," a computer must match the domain

name to the domain name's Internet Protocol number.2 The

match information is stored on various Internet-connected

computers around the world known as domain name servers.

The computer attempts to find the match information by

sending out an address query.3 The goal of the address

query is to find the particular domain name server containing

the match information the user seeks. See id. at 4-5.

When ordered to translate an unknown domain name into

an Internet Protocol number, a computer will ask its Internet

Service Provider's server if it knows the domain name and

corresponding Internet Protocol number. See Albert, supra

note 1, at 785. If that server lacks the information, it will

pass the query to a "root server," also called a "root zone"

file, the authoritative and highest level of the domain name

system database.4 See 63 Fed. Reg. at 8826. The root zone

file directs the query to the proper top-level domain zone file,

which contains the domain names in a given domain and their

corresponding Internet Protocol numbers. See 63 Fed. Reg.

__________

2 A domain name does not signal where a computer is physically

located. A computer may be moved from one place to another

while retaining the same domain name. Thus a domain name is not

an address as typically understood but instead is a mark identifying

a specific person's or organization's site on the Internet. See

Albert, supra note 1, at 785.

3 A computer user typically initiates an address query by typing a

domain name into an application such as a web browser. See

Albert, supra note 1, at 785.

4 There are 13 root servers, named A through M, which together

contain authoritative domain name databases. See 63 Fed. Reg. at

31,742. Information that a domain name is associated with a

certain Internet Protocol number goes on the A root server. See

PGMedia, Inc., No. 97 Civ. 1946, slip op. at 6. Servers B through

M download new domain name registration and Internet Protocol

number information on a voluntary and daily basis from the A root

server. See 63 Fed. Reg. at 31,742; see also PGMedia, Inc., No. 97

Civ. 1946, slip op. at 6. In this way, no matter which root server a

user's computer utilizes to commence an address inquiry, the query

can be completed successfully. See PGMedia, Inc., No. 97 Civ.

1946, slip op. at 6.

at 8828. In the case of someone searching for the "bettyand-

nicks.com" home page, the root zone file sends the query to

the top-level domain zone file with information about ".com"

domain names. The ".com" zone file then refers the query to a

second-level domain name file with all the second-level do-

main names under ".com." This is where the "bettyand-

nicks.com" query ends: the second-level domain name file has

the information matching the domain name to its associated

Internet Protocol number. With the Internet Protocol num-

ber, the user's computer can connect the user to the request-

ed Internet site. The "bettyandnicks.com" home page will

appear, just as if the user had typed in the Internet Protocol

number instead of the domain name. See PGMedia, Inc., No.

97 Civ. 1946, slip op. at 5.

Initially, the Internet Assigned Numbers Authority re-

tained responsibility for both Internet Protocol number allo-

cation and domain name registration. See id. at 7. In 1991

and 1992, NSF, an independent agency of the federal govern-

ment, assumed responsibility for coordinating and funding the

management of the nonmilitary portion of the Internet infra-

structure.5

In March 1992, NSF solicited competitive proposals to

provide a variety of infrastructure services, including domain

name registration services. NSF issued the solicitation pur-

suant to the National Science Foundation Act of 1950, 42

U.S.C. ss 1861-1887, as amended, and the Federal Grant and

Cooperative Agreement Act, 31 U.S.C. ss 6301-6308.6 In

__________

5 The NSF's role in the Internet's evolution began even earlier.

In 1987, the NSF awarded grants to IBM, MCI, and Merit to

develop the NSFNET, a national high-speed network based on

Internet protocols. See 63 Fed. Reg. at 31,742. The NSFNET, the

largest of the governmental networks, provided the "backbone" to

connect other networks serving more than 4,000 research and

educational institutions throughout the country. See id. In 1992,

Congress gave the NSF statutory authority to allow commercial

activity on the NSFNET. See id. This facilitated connections

between NSFNET and newly forming commercial network service

providers, paving the way for today's Internet. See id.

6 The solicitation did not anticipate the explosion in the volume of

domain name registrations that would occur. Only 3,950 nonmili-

December 1992, after an independent review of the proposals

responsive to the solicitation, NSF selected the bid from, and

entered into a cooperative agreement with, Network Solu-

tions, Inc., a private company.

B

The dispute in this case turns partly on the terms of the

cooperative agreement, which took effect January 1, 1993,

and, as amended, runs through September 30, 2000, at the

latest. Network Solutions became the exclusive registry and

exclusive registrar for the ".com," ".org," ".net," and ".edu"

top-level domains. See 63 Fed. Reg. at 8828. As a registry,

Network Solutions maintains a top-level domain's zone files,

the directory databases listing domain names and their Inter-

net Protocol numbers. See 63 Fed. Reg. at 8828. As regis-

trar, Network Solutions acts as go-between for domain-name

holders and the registry, providing various services, including

the registration of domain names on a first-come, first-served

basis. See 63 Fed. Reg. at 8828. The company also current-

ly maintains the "A" root server, see supra note 4.

The agreement provided that NSF would compensate Net-

work Solutions in accordance with a cost-plus-fixed-fee ar-

rangement. The cost-plus-fixed-fee arrangement ended on

September 14, 1995. Pursuant to an amendment to the

agreement, Network Solutions started charging domain name

registrants a one-time registration fee of $100 for registration

services for the first two-year period, and $50 per year

thereafter, with 70 percent of the fees going to Network

Solutions as "consideration for the services provided" and 30

percent set aside, in a custodial account held by Network

Solutions on NSF's behalf, for preserving and enhancing the

"Intellectual Infrastructure of the Internet." The 30 percent

__________

tary domain names were registered at the time of the solicitation,

and monthly registrations averaged 229. By September 1997, the

rate of registrations reached 125,000 per month, and there were

roughly 1.9 million names registered.

portion--the "Preservation Assessment"--was discontinued

for registrations made on or after April 1, 1998.7

Plaintiffs are individuals and companies (collectively "regis-

trants") who paid fees to Network Solutions to register and

maintain their domain names. They sued Network Solutions

and NSF claiming that the domain name fees violated the

Constitution, the Sherman Act, the Independent Offices Ap-

propriation Act, and the Administrative Procedure Act. They

sought damages, declaratory and injunctive relief, refund of

the fees earmarked for the Preservation Assessment, and

return of the above-cost portion of the fees they paid to

Network Solutions between September 14, 1995, and March

31, 1998, for registration services.

On April 6, 1998, the district court dismissed most of the

claims, but held that the Preservation Assessment was an

above-cost tax Congress had not authorized and hence was

unconstitutional. See Thomas v. Network Solutions, Inc., 2

F. Supp.2d 22, 31-32 (D.D.C. 1998). Within weeks, Congress

passed and the President signed into law s 8003 of the Fiscal

Year 1998 Supplemental Appropriations and Rescissions Act,

Pub. L. No. 105-174, 112 Stat. 58. Section 8003 is as follows:

Ratification Of Internet Intellectual Infrastructure

Fee. (a) The 30 percent portion of the fee charged by

Network Solutions, Inc. between September 14, 1995 and

March 31, 1998 for registration or renewal of an Internet

second-level domain name, which portion was to be ex-

pended for the preservation and enhancement of the

intellectual infrastructure of the Internet under a cooper-

ative agreement with the National Science Foundation,

and which portion was held to have been collected with-

out authority in William Thomas et al. v. Network Solu-

tions, Inc. and National Science Foundation, Civ. No.

97-2412, is hereby legalized and ratified and confirmed

__________

7 At that time, Network Solutions started charging $70 for regis-

tration services for the first two-year period, and $35 per year

thereafter. Later in 1998, NSF transferred responsibility for ad-

ministering its cooperative agreement with Network Solutions to

the Department of Commerce.

as fully to all intents and purposes as if the same had, by

prior act of Congress, been specifically authorized and

directed.

(b) The National Science Foundation is authorized and

directed to deposit all money remaining in the Internet

Intellectual Infrastructure Fund into the Treasury and

credit that amount to its Fiscal Year 1998 Research and

Related Activities appropriation to be available until

expended for the support of networking activities, includ-

ing the Next Generation Internet.

112 Stat. 58, 93-94. Holding that s 8003 ratified the Preser-

vation Assessment and thus mooted the sole surviving claim,

the district court dismissed the entire case on August 28,

1998. On October 23, 1998, plaintiffs moved for reconsidera-

tion under Fed. R. Civ. P. 60(b). The district court heard

argument on the Rule 60(b) motion on November 24, 1998,

ruling from the bench in defendants' favor. Registrants now

appeal portions of the April 1998 and August 1998 district

court orders.8

II

To begin, we shall assume, arguendo, that the 30 percent

portion of the domain name registration fee Network Solu-

tions collected and held for NSF constituted an illegal tax

because, as the district court decided, NSF lacked congres-

sional authorization. As all parties agree, this is not neces-

sarily fatal because legislation may confirm and render lawful

otherwise unlawful federal agency actions imposing charges

on others. An old Supreme Court case--rarely cited but

never overruled--stands for the proposition that Congress

"has the power to ratify the acts which it might have autho-

__________

8 Registrants have not appealed the district court's dismissal of

their claims concerning the Administrative Procedure Act and

Article IV, s 3 of the Constitution. At oral argument, they also

withdrew their appeal of the district court's dismissal of their claim

under s 1 of the Sherman Act. See Kickapoo Tribe of Indians v.

Babbitt, 43 F.3d 1491, 1496 n.7 (D.C. Cir. 1995).

rized" in the first place, so long as the ratification "does not

interfere with intervening rights." United States v. Heinszen

& Co., 206 U.S. 370, 384 (1907).9

In view of Heinszen, registrants pose two questions: did

Congress, in s 8003 of the 1998 supplemental appropriations

act, mean to ratify the Preservation Assessment; and, if so,

was Congress barred from ratifying NSF's action on the

ground that it could not have authorized NSF to impose the

assessment at any time.

As to the first question, the argument against ratification

proceeds on the basis that if Congress had wanted to confirm

the assessment s 8003 would have said "tax" rather than

"fee." We think this difference between s 8003's description

and the district court's is inconsequential. The effect of

s 8003 is the same as if it had used the word "tax." In

Heinszen, Congress called the "tax" at issue there a "duty,"

yet the Supreme Court still found a valid ratification. 206

U.S. at 378, 381-82. In Skinner v. Mid-America Pipeline

Co., 490 U.S. 212, 214-15, 222-23 (1989), the Court sustained

Congress's delegation of its taxing power in a provision,

entitled "Pipeline safety user fees," directing the Secretary of

Transportation to establish a system of "user fees" to cover

costs of administering federal pipeline safety programs. See

also Florida Power & Light Co. v. United States, 846 F.2d

765, 769, 776 (D.C. Cir. 1988). Here, although the district

court found the Preservation Assessment to be a "tax," we

are certain that s 8003 addresses the resulting fund of money

collected for NSF's benefit between September 1995 and

March 1998. Section 8003 identifies this case by name and by

its district court docket number; it accurately describes the

district court's holding; it specifies the precise period when

the Preservation Assessment was collected; and it mirrors

__________

9 No party has drawn a distinction between congressional ratifica-

tion before a judicial decision and ratification--as here--after a

decision (but before a final judgment) declaring the agency action

unlawful. Cf. Plaut v. Spendthrift Farm, Inc., 514 U.S. 211, 219-25

(1995). We will therefore assume that the two situations should be

treated the same.

the language the district court used in suggesting ratification.

The section's caption--"Ratification Of Internet Intellectu-

al Infrastructure Fee"--makes Congress's intent unmistak-

able, and the accompanying Conference report states that

s 8003 "serve[s] to ratify and confirm Congressional intent

with respect to the collection and use of funds by the National

Science Foundation....and the language included in this new

section will statutorily correct the lack of authority perceived

by the court."10 On the other hand, plaintiffs' reading of

s 8003 renders the provision nonsensical. The district court

had not held any "fee" illegal and so, if s 8003 ratified only

user fees, it ratified nothing.

Registrants cannot, as they suppose, derive support for

their interpretation of s 8003 from the Internet Tax Freedom

Act, Title XI of the Omnibus Consolidated and Emergency

Supplemental Appropriations Act, 1999, Pub. L. No. 105-277,

112 Stat. 2681 (1998). The Internet Tax Freedom Act be-

came law after the district court's dismissal of this case; it

does not repeal s 8003; in fact it does not even mention

s 8003; the tax moratorium it enacts deals with prospective

taxes imposed by states or political subdivisions thereof; it

excludes from its coverage "liability for taxes accrued and

enforced before the date of enactment of this Act"; and it

specifically exempts "ongoing litigation relating to such tax-

es."

This brings us to the second question raised in light of

Heinszen--whether Congress could have authorized NSF to

collect the assessment from the beginning (if it could not have

done so, it cannot ratify NSF's actions after the fact). Regis-

__________

10 Registrants also make much of a letter from a Member of the

House of Representatives and a letter from three Senators written

after Congress passed s 8003. Such isolated post-enactment state-

ments, to the extent that they are legislative history, carry little

weight, see Landgraf v. USI Film Products, 511 U.S. 244, 262, 262-

63 n.15 (1994), and in any event, do not alter the plain meaning of

this statute. It is clear that Congress meant to ratify the Preserva-

tion Assessment. Even these legislators do not appear to contest

this. All they dispute is the Preservation Assessment's label--tax

or fee.

trants start this part of their argument with the proposition

that "Congress can never delegate the unfettered power to

legislate," from which they conclude that Congress could not

have delegated to NSF the power "to fix Internet taxes"

before the 30 percent assessment went into effect. Appel-

lants' Brief at 23-24. We think registrants' argument mis-

casts not only what Congress did, but also what Congress

could have done initially. Section 8003 delegated to NSF no

discretionary authority, much less the power to enact tax

legislation or to fix tax rates. When Congress passed this

provision in May 1998, the rate had already been set, the

assessments already collected. Congress then knew how

much Network Solutions had been charging registrants, the

period during which the charges had been imposed (Septem-

ber 14, 1995, through March 31, 1998), and what portion of

the charges--30 percent--had gone to NSF and for what

purpose. It was this "fee" that, in the words of s 8003,

Congress "legalized and ratified and confirmed as fully to all

intents and purposes as if the same had, by prior act of

Congress, been specifically authorized and directed." If a

prior act of Congress had directed NSF to collect $30 for

each new registration and $15 thereafter and to retain the

funds in order to support the Internet, we perceive no

reason--registrants have offered none--why such legislation

would not have been within Congress's constitutional power

under Article I, s 8. See Federal Power Comm'n v. New

England Power Co., 415 U.S. 345, 349 (1974); Seafarers Int'l

Union of N. Am. v. United States Coast Guard, 81 F.3d 179,

182-83 (D.C. Cir. 1996).

III

Count 10 of the amended complaint charges that Network

Solutions, in violation of s 2 of the Sherman Act, 15 U.S.C.,

abused its alleged monopoly power in the domain name

registration market by refusing to allow potential competitors

to introduce additional top-level domains into the "Configura-

tion File"--the "A" root server--"the Essential Facility con-

trolled by [Network Solutions]."11 The district court dis-

missed this claim for failure to state a cause of action, on the

ground that a "federal instrumentality doctrine" gave Net-

work Solutions the same immunity from antitrust liability as

that enjoyed by NSF.

Whether there is, or should be, any such "federal instru-

mentality doctrine" in this context is not clearly settled. The

Department of Justice, representing NSF in this appeal, has

taken no position on the question. Network Solutions, seeking

to convince us of its immunity, starts with the point that NSF

is itself outside the reach of the Sherman Act. This is clear

enough. NSF is part of the federal government. The Su-

preme Court has interpreted the word "person" in s 2 of the

Sherman Act to exclude the United States from liability. See

United States v. Cooper Corp., 312 U.S. 600 (1941). We

therefore held in Sea-Land Service, Inc. v. Alaska Railroad,

659 F.2d 243 (D.C. Cir. 1981), that the Alaska Railroad, an

entity wholly owned and operated by the federal government,

was not subject to Sherman Act liability. Given NSF's

antitrust immunity, Network Solutions maintains that it also

has immunity so long as its alleged anti-competitive actions

were "taken pursuant to the Cooperative Agreement." Net-

work Solutions' Brief at 34. In agreeing with this conclusion,

the district court relied on Southern Motor Carriers Rate

Conference, Inc. v. United States, 471 U.S. 48, 58-65 (1985).

But as Network Solutions now acknowledges, Southern Mo-

tor Carriers arose in a different setting. The Supreme Court

was there interpreting the effect of Parker v. Brown, 317

U.S. 341, 352 (1943), which recognized the immunity of States

under the Sherman Act for imposing a restraint on trade "as

an act of government." As to entities under State regulation,

Southern Motor Carriers held that if they take action pursu-

__________

11 Count 10 might be read to allege another, distinct claim--

namely, that Network Solutions denied access to the Configuration

File to some unnamed potential competitors purportedly seeking to

register domain names containing the customary top level domains.

At oral argument registrants seemed to eschew such a reading. In

any event, our treatment of Count 10 applies equally to this

potentially distinct claim.

ant to a "clearly articulated and affirmatively expressed"

State policy, even a policy simply permitting the anti-

competitive conduct, and if the State actively supervises the

conduct, such private parties are also immune from antitrust

liability. 471 U.S. at 62. The Court's reasoning rested, in

part, on considerations of federalism, considerations obviously

not present when federal regulation is involved. See id. at 61;

compare Ricci v. Chicago Mercantile Exch., 409 U.S. 289,

300-01 (1973), with IA Phillip E. Areeda & Herbert Hoven-

camp, Antitrust Laws s 248, at 116-18 (1997 ed.).

Just as important, Southern Motor Carriers dealt only with

state regulation of private entities. See also Greensboro

Lumber Co. v. Georgia Power Co., 844 F.2d 1538 (11th Cir.

1988). Here we have instead a contractual relationship be-

tween a federal government agency and a private party.12 It

is not obvious to us, particularly in view of Otter Tail Power

Co. v. United States, 410 U.S. 366, reh'g denied, 411 U.S. 910

(1973), that a private contractor automatically shares the

federal agency's immunity simply because the contractor's

allegedly anti-competitive conduct occurred--as Network So-

lutions puts it and some courts suggest13--"pursuant" to a

government contract. A contractor might be free to perform

the contract in any number of ways, only one of which is anti-

competitive.14

__________

12 The complex subject of antitrust immunity for private parties,

after the Supreme Court's decision in Parker v. Brown, is discussed

at length in 1 Phillip E. Areeda & Herbert Hovencamp, Antitrust

Laws ss 221-231, at 356-540 (revised ed. 1997).

13 See, e.g., PGMedia, Inc., No. 97 Civ. 1946, slip op. at 20;

Beverly v. Network Solutions, Inc., No. C-98-0337, 1998 WL

320829, at *4 (N.D. Cal. June 12, 1998); Medical Ass'n of Ala. v.

Schweiker, 554 F. Supp. 955, 966 (M.D. Ala. 1983).

14 In Otter Tail, an electric utility company sought to avoid

Sherman Act liability partly on the ground that its anti-competitive

actions were pursuant to its contract with the Bureau of Reclama-

tion, a federal agency. The Court rejected this defense, agreeing

with the Solicitor General that "government contracting officers do

not have the power to grant immunity from the Sherman Act." 410

Whether and under what circumstances a federal contrac-

tor has antitrust immunity are questions we leave to another

day. A firmer ground for resolving this aspect of the case is

presented; although it was neither raised nor decided in the

district court, it has been argued on appeal and prudence

dictates that we consider it. Count 10 of the complaint

states, as the registrants agree, an "essential facilities" claim.

See generally 3A Phillip E. Areeda & Herbert Hovencamp,

Antitrust Laws ss 771-774, at 172-228 (1996); Phillip E.

Areeda & Herbert Hovencamp, Antitrust Laws 654-60 (1995

Supp.). Network Solutions, for the first time on appeal,

contends that plaintiffs lack "standing" to raise their "essen-

tial facilities" claim. Caribbean Broadcasting System, Ltd. v.

Cable & Wireless PLC, 148 F.3d 1080, 1088 (D.C. Cir. 1998),

decided after the district court's decision in this case, held

that among the "elements of an antitrust claim for denial of

access to an essential facility are (1) a monopolist who com-

petes with the plaintiff controls an essential facility" and "(3)

the monopolist denied the plaintiffs use of the facility...."

The plaintiffs here are those who registered their domain

names for a fee. They are not, according to their amended

complaint, competitors of Network Solutions. It follows that

they have failed to satisfy two of the elements set forth in

Caribbean Broadcasting. Does this mean they lack "anti-

trust standing," see Associated General Contractors of Cali-

fornia, Inc. v. California State Council of Carpenters, 459

U.S. 519, 535 n.31 (1983), as Network Solutions claims, or

does it mean that have they failed to state a cause of action?

Our decision in Caribbean Broadcasting holds that competi-

__________

U.S. at 378-79. To this firm statement, the Court added what

might be perceived as qualifiers:

Such contracts stand on their own footing and are valid or not,

depending on the statutory framework within which the federal

agency operates. The Solicitor General tells us that these

restrictive provisions [in the contract] operate as a "hindrance"

to the Bureau and were "agreed to by the Bureau only at Otter

Tail's insistence," as the District Court found. The evidence

supports that finding.

Id. at 379.

tor status is simply an element of the cause of action, in the

absence of which the claim should be dismissed under Rule

12(b)(6), Fed. R. Civ. P. See 148 F.3d at 1089. While this

does not necessarily preclude also treating the matter in

terms of standing,15 and thus as a question that may be raised

at any time, we have determined to rely on Caribbean Broad-

casting and its treatment of non-competitor status even if we

are dealing not with standing but with a defense on the

merits. As we have said, Caribbean Broadcasting came

down after the decision below. If we ignored Caribbean

Broadcasting and sent the case back to the district court,

either because we disagreed with the district court's finding

of immunity, or because we thought further factual develop-

ment was in order, see Otter Tail Power Co., 410 U.S. at 379,

Network Solutions would be free to invoke Caribbean Broad-

casting in its answer, which it has not yet filed, or in a motion

for summary judgment, or both. The district court would

then have to rule in favor of Network Solutions because the

plaintiffs are not competitors. There is no reason to postpone

the inevitable. In these rather exceptional circumstances we

have discretion to consider a claim neither raised nor decided

in the district court. See Granfinanciera, S.A. v. Nordberg,

492 U.S. 33, 38-39 (1989); Heckler v. Campbell, 461 U.S. 458,

468-69 n.12 (1983); Animal Legal Defense Fund v. Espy, 23

F.3d 496, 499 (D.C. Cir. 1994). On the basis of Caribbean

Broadcasting we therefore will affirm the district court's

judgment dismissing Count 10.

IV

The final issue deals with the Independent Offices Appro-

priation Act ("Act"), 31 U.S.C. s 9701, a statute requiring

that fees charged for federal agency services comport with

__________

15 See Steel Co. v. Citizens for a Better Env't, 118 S. Ct. 1003,

1013 n.2 (1998): "The question whether this plaintiff has a cause of

action under the statute, and the question whether any plaintiff has

a cause of action under the statute are closely connected--indeed,

depending upon the asserted basis for lack of statutory standing,

they are sometimes identical, so that it would be exceedingly

artificial to draw a distinction between the two."

set criteria.16 Registrants claim that the above-cost portion

of the fees Network Solutions charged for its registration and

renewal services violated the Act.

Government agencies cannot escape responsibility for fail-

ing to perform their statutory duties by hiring private parties

to perform those duties. If a statute required NSF to

register domain names, and NSF farmed this out to Network

Solutions, the Act might apply. But that is not the situation

before us. The key governing statute is 42 U.S.C. s 1862(g).

While s 1862(g) may, or may not, permit NSF to register and

renew domain names--we do not need to reach this ques-

tion--we are certain that it does not require NSF to do so.

It merely directs NSF "to foster and support access ... to

computer networks." 42 U.S.C. s 1862(g). One way to fulfill

__________

16 Section 9701 states in full:

Fees and charges for Government services and things of val-

ue[:]

(a) It is the sense of Congress that each service or thing of

value provided by an agency (except a mixed-ownership Gov-

ernment corporation) to a person (except a person on official

business of the United States Government) is to be self-

sustaining to the extent possible.

(b) The head of each agency (except a mixed-ownership

Government corporation) may prescribe regulations establish-

ing the charge for a service or thing of value provided by the

agency. Regulations prescribed by the heads of executive

agencies are subject to policies prescribed by the President and

shall be as uniform as practicable. Each charge shall be--(1)

fair; and (2) based on--(A) the costs to the Government; (B)

the value of the service or thing to the recipient; (C) public

policy or interest served; and (D) other relevant facts.

(c) This section does not affect a law of the United States--

(1) prohibiting the determination and collection of charges and

the disposition of those charges; and (2) prescribing bases for

determining charges, but a charge may be redetermined under

this section consistent with the prescribed bases.

such a broad mandate, NSF apparently decided, was to enter

into a cooperative agreement with Network Solutions to have

the company register and maintain second-level domain

names.

Registrants argue that because a federal agency hired

Network Solutions, the Act must cover the domain name fees.

By its terms, the Act applies only to "a service or thing of

value provided by an agency." 31 U.S.C. s 9701(a) (emphasis

added). Here, a private party (Network Solutions) per-

formed the domain name registration services--and did so as

it saw fit. Registrants' amended complaint acknowledges

Network Solutions' near total command over domain name

registrations: "NSF has not and does not directly supervise

or manage any NSI activities pertaining to the Domain Name

registration process. The only 'control' and 'oversight' exer-

cised by NSF over NSI and the Domain Name registration

process is the contractual requirement that NSF submit

certain limited quarterly and annual reports."17 This might

seem sufficient to indicate that the Act does not apply. But if

we give the section a broader interpretation, see Ayuda, Inc.

v. Attorney General, 848 F.2d 1297, 1299-1300 (D.C. Cir.

1988), the question becomes whether domain name registra-

tion is a government service or thing of value within the Act's

meaning. The answer, we believe, is no. As we said, Con-

gress chose not to require NSF or any other agency of the

federal government to register domain names. Simply be-

cause NSF might have been able to perform domain name

registration does not transform this activity into a govern-

ment service or thing of value. A recent and novel function

such as domain name registration hardly strikes us as a

"quintessential" government service, as registrants suppose.18

__________

17 Registrants' admission that Network Solutions--not NSF--

controlled the domain name registration process negates regis-

trants' claim that Network Solutions was merely NSF's agent.

18 Registrants also stress the "public purpose" of domain name

registration. But as the Supreme Court has said, albeit in a

slightly different context: "[T]hat a private party performs a func-

tion which serves the public does not make its acts governmental."

San Francisco Arts & Athletics, Inc. v. United States Olympic

Comm., 483 U.S. 522, 543-44 (1987) (citation omitted).

Indeed, it was not the government but the Internet Assigned

Numbers Authority--headed by the late Dr. Postel at USC,

see 63 Fed. Reg. at 8826--that originally maintained host

computer name lists.

The two Comptroller General decisions registrants cite do

not alter this conclusion. In In re: FEC-Sales of Microfilm

Copies of Candidate and Committee Reports, 61 Comp. Gen.

285 (1982), and In re: Retention of Fees Received by EPA

Contractors Providing Information Services to the Public,

1975 WL 7967 (Comp. Gen. Oct. 20, 1975), federal agencies

hired private firms to produce agency records on the agen-

cies' behalf. Both cases involved services that statutes re-

quired the agencies to perform. There is no such statutory

mandate here.

The Act is a nonfit in other ways. The Act applies to

monies bound for the federal treasury. In its original form,

the Act stated that "any amount" from fees or charges for

government services "shall be collected and paid into the

Treasury" as miscellaneous receipts. Pub. L. No. 137, tit. V,

65 Stat. 268, 290, formerly codified at 31 U.S.C. s 483a,

recodified at 31 U.S.C. s 9701. The 1982 recodification of the

Act omitted this requirement but only because s 3302(a)

made it "unnecessary." 31 U.S.C. s 9701, Explanatory

Notes. Section 3302 provides that any official or agent who

receives money for the government from any source shall

keep the money safe, see s 3302(a), and deposit the money in

the Treasury, see s 3302(b). The monies at issue here--the

70 percent portion of the domain name fees--were paid to

Network Solutions for its services. The company is under no

duty to turn over any portion to the federal government. To

the contrary, according to the cooperative agreement and

federal law, see 58 Fed. Reg. 62,992, 62,995, 62,998 (1993), as

amended by 62 Fed. Reg. 45,934 (1997), the monies belong to

Network Solutions. Any remaining doubt is laid to rest by

considering the penalty for noncompliance with s 3302. An

official or agent who receives money for the government and

does not deposit such money promptly in the Treasury may

be removed from office. See id. s 3302(d). This sanction

makes no sense with respect to a private actor like Network

Solutions.

For all these reasons we hold that the Independent Offices

Appropriation Act does not cover the fees Network Solutions

charged for its services.

* * *

We have considered and rejected registrants' other conten-

tions.

Affirmed.