NeuLevel settles class-action suit

December 31st, 2002
By Reuters

Managers of the .biz Internet domain have agreed to pay roughly $1.2 million to settle charges that their system for handing out hot names such as "www.show.biz" amounted to an illegal lottery.

The agreement, approved Dec. 13 but made public last weekend, marks the end of a rocky legal road that domain manager NeuLevel has traveled since launching one of the first alternatives to established domains such as .com last year.

Most of the settlement will go to cover attorneys' fees, as NeuLevel has already sent millions of refunds to customers who paid an average of $5 for a chance to win control of desirable names such as "computer.biz" when the new domain was opened to the public.

The Sterling, Va.-based firm had hoped that the system would discourage frivolous registrations and help it cope with an expected land rush as Internet users sought to stake out territory in the new domain.

Instead, it prompted a class-action suit from Phoenix disc jockey David Smiley and other disgruntled applicants who said the system amounted to an illegal lottery.

A California judge agreed with Smiley last fall and blocked NeuLevel from handing out an estimated 58,000 disputed names.

NeuLevel subsequently paid $1.7 million in refunds to most of the applicants who were vying for the disputed names and made those domains available again without an up-front fee.

The class-action settlement covers the roughly 25,000 applicants who have not yet received refunds.

According to a copy of the agreement posted on NeuLevel's Web site, the company will refund a wholesale fee of $2 per application to those who applied for names but did not get them.

Others who did get their desired names, but submitted multiple applications to improve their chances, will get 15 cents per application if they turned out to be the only ones vying for their names.

NeuLevel will also pay $1.175 million to cover plaintiffs' attorney fees.

A lawyer for the plaintiffs said that although the amount consumers will receive is relatively small, the case sets an important precedent for other companies that may launch new domain names in the future.

"Everybody in the domain-name industry knows about this lawsuit and there's not going to be another illegal lottery for domain names," said Seattle attorney Derek Newman.

A NeuLevel spokeswoman defended the company's methods.

"While we still stand by our process and think it's the most fair and equitable way to distribute domain names, we are glad that the matter has been resolved," NeuLevel spokeswoman Barbara Blackwell said.

NeuLevel has since registered 750,000 names in the .biz domain, compared with 21 million in the more established .com domain. More than half the domain names point to blank Web pages, a July study found.

NeuLevel is a joint venture between private Washington telecommunications firm NeuStar and Australia's Melbourne IT.

At least one other new domain ran into trouble when it was opened up to the public last fall, as consumers hoping to register a name in the .info domain said domain-name manager Afilias had allowed many of the most desirable names to be snapped up by questionable trademark claims in a special preregistration period.

The head of the Internet Corporation for Assigned Names and Numbers (ICANN), which oversees domain names, has since said that he favors restricted domains, such as the U.S. government's .gov, that are not available to the general public.

ICANN did not return calls for comment.