NSF's $50 Million Domain Fund Ruled Illegal

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April 09, 1998 (12:00 AM EDT)

By John Borland,

A federal judge ruled Wednesday that the $30 "Intellectual Infrastructure Fund" fee paid as a part of every domain name registration until this month had been illegally collected, raising the possibility that more than $45 million will have to be returned to domain name owners.

The NSF fee had not been officially approved by Congress, the only federal body with the power to impose a tax, ruled U.S. District Court Judge Thomas Hogan.

"Congress may have intended to grant NSF the authority to collect the assessment, but it has not yet done so," Hogan wrote. While legislators may still have the power to authorize use of the money, he said, "Congress must pass legislation that more explicitly conveys its intentions."

More than $45 million had been collected in the 3-year-old fund when it was phased out on the first of this month. The NSF had announced in mid-March that it was ending the fee because the domain name system was being transferred to the private sector. The decision was not related to the lawsuit, foundation officials said.

The lawsuit targeting the fund was led by Washington, D.C., attorney William Bode, on behalf of a group of conservative Internet users called the American Internet Registrants Association. The plaintiffs said that NSF did not have the authority to impose the fee, and further said that the Herndon, Va.-based Network Solutions had illegally charged domain owners fees "grossly in excess" of the actual costs of registering the names.

"No final decision in the history of our republic has been overturned with after-the-fact ratification."
-- William Bode
AIRA

At least $23 million from the infrastructure fund was already slated for the federal Next Generation Internet project, which helps finance university and research institutions' connections to a super high-speed backbone data network. While the entire NGI project extends through several agencies, the NSF's portion was to be funded entirely by the domain name fees this year.

The project already has funded 92 university connections to the high-performance network, according to NSF spokeswoman Beth Gaston. "We were hoping to expand that to about 150, but we can't do that without the additional funds," Gaston said. Portions of the domain-name fees would also have been used to fund basic research on improving the performance of existing networks, she added.

The decision did not completely rule out use of the fund in the future, however. Hogan said Congress could revive the fund by passing legislation specifically ratifying the tax. A bill on the subject later this session is likely, since legislators already have ordered the $23 million to be spent this year.

Bode predicted that passage of this kind of bill would be unlikely, however. "No final decision in the history of our republic has been overturned with after-the-fact ratification," he said. "I think that's highly unlikely. We've got an administration that's lowering taxes. It would be a lot for them to ratify an unconstitutional tax."

His clients will now ask the courts for class-action status, which would allow them to seek the return of the entire fund to all domain name owners. That process would take between three and five months, Bode estimated.

A clear winner in Hogan's decision was Network Solutions, which had been named as a defendant on several points in the suit. Bode and his clients had asked that a full audit be done of Network Solutions' management of domain name business, and that all fees exceeding the actual cost of registration be returned to domain owners.

Hogan dismissed all of these charges, however. "We're actually very pleased with the results," said Network Solutions spokeswoman Nancy Huddleston.

Bode said his clients may pursue another challenge to the fees they claim were "grossly in excess" of the actual costs of domain registration, however. While the court dismissed their claim against NSI, "that presumably means we can seek redress from the NSF," he said. His legal team is researching that possibility now, he added.