Counterstatement of Issue Presented

Defendant-appellee Network Solutions, Inc. ("NSI") offers the following as a more precise statement of the issue raised on appeal by plaintiff-appellant PGMedia, Inc. ("PGMedia"), which relates to its antitrust claim against NSI:

of the Internet’s "root zone file," when NSI maintained that

file pursuant to a cooperative agreement with the U.S. Govern-

ment and in compliance with specific direction by the Government?

This case represents an attempt by PGMedia to invoke the antitrust laws in a unilateral effort to make fundamental changes to the Internet’s infrastructure – changes that the U.S. Government has said should be made by the Internet community, as represented by a new nonprofit Internet corporation that was formed in late 1998 in response to the Government’s plan to "privatize" certain Internet management responsibilities. The specific changes PGMedia seeks to make are ones that have sparked considerable controversy within the Internet community: Whether, when and how new "generic top level domains" or "gTLDs" should be added to the Internet.

"Top level domains" ("TLDs") function somewhat like virtual "area codes" on the Internet, and gTLDs refer to the handful of three-letter TLDs, such as .com, .net and .org, that are widely used by businesses and others in the U.S. and elsewhere and that appear at the end of Internet "domain names," e.g., "aol.com", "att.net" and "nysba.org." As part of its privatization plan, the U.S. Government vested the new Internet corporation with responsibility for deciding whether, when and how new gTLDs should be added to the Internet. The Government’s plan also contemplated that those decisions would be made by the new Internet corporation with active and meaningful participation by the international Internet community.

PGMedia seeks to preempt the Government’s privatization plan and its consensus-based approach to dealing with gTLD policy issues. PGMedia claims that the antitrust laws entitle it to have its self-selected list of nearly 500 gTLDs added to the Internet so that it can make money by offering Internet domain names within those new gTLDs. NSI became the target of PGMedia’s antitrust attack because, among other things, NSI maintains the master list of Internet TLDs (in a computer file called the "root zone file") under a cooperative agreement originally entered into with the National Science Foundation (the "NSF") and later transferred to the U.S. Department of Commerce (the "DOC").

PGMedia first demanded that NSI add its list of almost 500 gTLDs to the root zone file in mid-March 1997, just as the U.S. Government began considering the transfer of certain Internet management responsibilities to the private sector. NSI informed PGMedia that decisions to add new TLDs were made by others – not by NSI – and it forwarded PGMedia’s demand to the appropriate decisionmaker for a response. Without waiting for that response, PGMedia commenced this action on March 20, 1997, claiming that the root zone file was an "essential facility" and that NSI’s "refusal" to add PGMedia’s list of new gTLDs to the root zone file constituted an act of unlawful monopolization by NSI in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2.

In early June 1997, faced with PGMedia’s antitrust action and demands by others to have new gTLDs added to the Internet, NSI formulated a proposal to allow new gTLDs to be added to the root zone file and submitted that proposal to the NSF for its approval under the cooperative agreement. The NSF rejected NSI’s proposal in late June 1997 and instead directed NSI to add no new gTLDs while the Government studied that issue as part of its consideration of plans to privatize management of the Internet. The NSF reaffirmed its directive to NSI in August 1997.

In September 1997, PGMedia filed a second amended complaint adding the NSF as a defendant and seeking a declaration that the NSF’s directive to NSI violated PGMedia’s right of free speech under the First Amendment.

In May 1998, the parties agreed to make cross-motions for summary judgment in an effort to seek an early determination by the District Court of potentially dispositive legal issues, including the issue of whether PGMedia’s antitrust claim against NSI was foreclosed by the "federal instrumentality" doctrine. During the briefing of those motions, the DOC released in June 1998 the Government’s final policy statement that described its plan to transfer management of certain Internet technical functions to a private nonprofit corporation and to give that new corporation responsibility for deciding, among other things, whether, when and how new gTLDs should be added to the Internet.

After oral argument of the summary judgment motions in July 1998, and while the motions were sub judice, several additional developments pertinent to this case occurred that were the subject of a stipulation and supplemental briefing by the parties in early 1999. First, in September 1998, the NSF transferred to the DOC responsibility for administering the cooperative agreement with NSI. Second, in October 1998, the DOC and NSI entered into an amendment to the cooperative agreement that, among other things, clearly directed NSI to add no new TLDs to the root zone file without the prior written authorization of the DOC. Finally, in November 1998, the DOC took steps to recognize the Internet Corporation for Assigned Names and Numbers ("ICANN") as the new nonprofit corporation proposed in the DOC’s June 1998 policy statement, by entering into a Memorandum of Understanding with ICANN to implement the privatization plan set forth in that policy statement.

On March 16, 1999, the District Court (Hon. Robert P. Patterson, Jr.) issued a comprehensive opinion and order (A834-A866) denying PGMedia’s motion for summary judgment and granting the cross-motions of NSI and the NSF. The vast bulk of Judge Patterson’s opinion is devoted to a detailed review of the factual record and the statutory and case authority pertinent to the application of the "federal instrumentality" doctrine to NSI’s maintenance of the root zone file under the cooperative agreement. Based on that review, Judge Patterson concluded that "NSI is entitled to antitrust immunity for its actions taken pursuant to the Cooperative Agreement, as amended." A863.

Judgment was entered on March 24, 1999 dismissing PGMedia’s second amended complaint with prejudice, and this appeal followed.

"The U.S. Government has played a pivotal role in creating the Internet as we know it today." To a large extent the Government has relied on private entities acting under government contracts and cooperative agreements to develop and operate, in a coordinated and cooperative fashion with each other, the technological infrastructure of the Internet. The Internet functions because these private entities have developed a common set of rules called "protocols" that govern how computers on the Internet exchange information with each other. The U.S. Government did not mandate that any of these protocols be used on the Internet, but rather supported their development and voluntary acceptance by the Internet community based on informal consensus.

Until about four years ago, the Internet community was a relatively small and homogeneous group comprised mainly of educational and research institutions, government agencies, government contractors and computer engineers. Within this group, informal consensus on the "rules" of the Internet could be achieved with limited oversight by the Government. Beginning around late 1994, however, the Internet experienced explosive growth that continues today. With that growth, the Internet community also grew from a small group of like-minded individuals located primarily in the U.S. to a diverse group consisting of many millions of individuals, businesses and institutions located throughout the world. This new global Internet community gave voice to different and often conflicting views as to what the "rules" for the Internet should be, and how and by whom those rules should be set.

Faced with this dramatic change in the size and composition of the Internet community and the stress those changes placed on the stability of the Internet’s administration and operation, the U.S. Government recognized in 1997 that it needed to play a leading role in developing and implementing a more formal structure for managing the Internet while preserving the tradition of "bottom up" consensus-based decisionmaking that had served the Internet so well in the past. The June 1998 Policy Statement is the U.S. Government’s definitive expression of its plan to achieve those objectives.

A brief overview of the history of the Internet and the way the "rules" of the Internet have been developed by the Internet community, and administered by NSI under its cooperative agreement with the U.S. Government, may help to place PGMedia’s antitrust claim against NSI in proper context. What that overview shows is that the real dispute here is not between commercial entities seeking to advance their own commercial interests, but rather a dispute over policy decisions made by the U.S. Government concerning the management of certain Internet functions and NSI’s compliance with those government decisions.

Today’s Internet traces its origins to an experimental computer networking project conceived in the late 1960s by the Defense Department’s Advance Research Project Agency ("ARPA") that was called "ARPANET." U.S. Policy Statement, 63 Fed. Reg. at 31741. ARPA contracted with a private consulting firm to create a computer network linking computers and local computer networks owned by the military, defense contractors and university laboratories that were conducting defense-related research under contract with ARPA. Id. ARPANET was intended to serve quite pedestrian purposes: to exchange electronic mail and to enable remote access to "host" computers located in distant geographic locations, which could reduce the need for researchers to travel to those locations at government expense.

Even though the anticipated uses for the experimental ARPANET were modest, the technological challenges the project presented were formidable. Engineers from the private and government sectors collaborated together in developing an entirely new series of network communication "rules" or protocols to enable different kinds of computers that used different kinds of operating systems to "speak" with each other. This collaboration was facilitated by the participants’ practice of exchanging technical information and comments in documents called "Request for Comments" or "RFCs." Internet Origins at 143-45. A young engineering graduate student at UCLA named Jon Postel agreed to be the "editor" of the RFCs. U.S. Policy Statement, 63 Fed. Reg. at 31741. As discussed below, Postel would play a far larger role in the Internet’s operation in the ensuing years.

ARPANET was launched in late 1969 when it linked two computers located in Northern and Southern California that were able to exchange information using a new communication protocol called the "Network Control Protocol." Internet Origins at 155; A544, ¶ 6. This communication protocol, although primitive by today’s standards, worked reasonably well as long as the number of computers linked to ARPANET was relatively small. But by the mid-1970s, several hundred computers and computer networks owned by ARPA contractors were connected to ARPANET and a more robust set of communication "rules" was required. Internet Origins at 224-25. Once again, engineers and researchers from the Internet community collaborated during the 1970s and early 1980s to create what became known as the "Transmission Control Protocol/Internet Protocol" or "TCP/IP." Id. at 226-28.

The TCP/IP protocols replaced the older Network Control Protocol by 1985. A544, ¶ 6. One difference between the two sets of protocols was that TCP/IP used something called "Internet Protocol"or "IP" numbers to identify computers connected to the network. IP numbers look somewhat like telephone numbers; they consist of four sets of numbers separated by periods, with the IP number totaling no more than 12 digits; for example, 112.124.159.111. A546, ¶ 13. The use of IP numbers required that each computer on the network be assigned a unique numeric address; as additional computers connected to the network, additional unique IP numbers needed to be assigned to those computers as well. Jon Postel, who by 1985 was affiliated with the University of Southern California’s Information Sciences Institute, agreed to perform this function under a contract with the Department of Defense. A547, ¶ 14. In later years, the functions performed by Postel under his government contract were referred to as the Internet Assigned Numbers Authority or "IANA." Id.

At about the time that TCP/IP was being deployed, ARPANET was being phased out and a new high-speed computer network supported by the NSF and called the NSFNET was taking its place. A544, ¶ 6. The NSFNET was developed and used by many of the same entities that participated in the ARPANET, along with other entities engaged in general scientific research that received support from numerous sources, including the NSF. Id., ¶ 5. The Internet today is a direct descendent of NSFNET. A545, ¶ 6.

As the number of computers connected to NSFNET increased, the practice of using IP numbers to locate and communicate with other computers on the network became more difficult. Consequently, NSFNET users began informally to assign "names" to their computers that were easier to remember than the 12-digit IP number. A547, ¶ 15. To accommodate this practice, Postel began compiling and frequently updating a computer file called "HOST.TXT" that contained a list of these informal names and their corresponding IP numbers, which had to be sent to and stored on each computer connected to NSFNET so that users could communicate with other computers by typing that other computer’s "name" rather than its IP number. A563, ¶ 2.1. This was a cumbersome and time-consuming process. It also was inefficient because all computers had the same file containing the names and IP numbers of all computers on the network; as the list grew to include thousands of computers, this "flat" structure slowed communication on the network. Id. A new naming structure needed to be developed. It was called the "Domain Name System," and its set of rules is at the heart of PGMedia’s antitrust claim against NSI.

Like other "rules" for the Internet, the Domain Name System or "DNS" was a product of collaboration and consensus among members of the Internet community. The basic features of the DNS were described in RFC 1034, authored by a colleague of Jon Postel in 1987. A563-609. Unlike the then-current practice of having all IP numbers and their corresponding names contained in a single file stored on every computer on the network, the DNS uses a hierarchical system of computer databases stored on special computers called "name servers" that translate user-friendly "domain names" (such as aol.com) into their corresponding IP numbers, which are what computers use to communicate on the Internet. A547, ¶¶ 16-17.

The Domain Name System introduced the concept of "hierarchy," i.e., of having only a limited number of "top level domains" (such as .com, .gov and .us), but then a much larger number of "second-level domain names" under each top level domain (such as the "aol" in aol.com). Thus, for example, there is only one TLD on the Internet called .com, but there are millions of second level domain names under the .com TLD.

The Domain Name System also formally introduced the concept of "domain name registration," which is the process that associates particular domain names with particular IP numbers and ensures that no two domain names are the same within the same TLD. At the present time, NSI provides domain name registration services for second-level domain names in three "generic" TLDs (.com,.net and .org) and in the .edu TLD, which is restricted to colleges and universities. A386, ¶ 16. The Government Services Administration, a federal agency, acts as registrar for the .gov TLD, which is restricted to U.S. government agencies. A387, ¶ 17. In addition to the three-letter TLDs, there are approximately 240 two-letter ccTLDs, such as .uk for the United Kingdom. A385-A386, ¶ 11. Other entities — both government-sponsored and private — act as second-level domain name registrars for each of those ccTLDs around the world. A387, ¶ 20. This case, however, is not about registration services for second-level domain names; it is about government-directed, current restrictions on gTLDs.

Just as the structure of domain names is hierarchical, so too is the system of name servers (i.e., computers) used by the DNS to translate those domain names into IP numbers. A384-A385, ¶¶ 8-9. At the top of this hierarchy of computers is a set of name servers called "root servers." The root servers store identical copies of a text file called the "root zone file," which contains the IP numbers used to contact the name servers at the next level below in the hierarchy. A387-A388, ¶¶ 22, 25. The name servers at that next level are called "TLD zone servers." A548, ¶ 20. Each of the TLD zone servers has a database containing a list of IP numbers for each of the second- level domain names within a particular TLD. Id., ¶ 21. A simple example may help to explain how this hierarchical system of name servers operates: Suppose someone who is connected to the Internet desired to communicate with a computer on the Internet that used the newly-registered domain name xyz.com. When our hypothetical user typed the name "xyz.com" in his or her computer, the communication would first go to one of the root servers, which would query its database of TLDs to locate the IP number for the ".com" TLD zone server and then direct or "point" the communication to that server. Next, the ".com" TLD zone server would process the communication by querying its database of second-level domain names for the name "xyz" and its associated IP number. The TLD zone server would then direct the communication to the computer named "xyz.com," at which point the communication with that computer would be established. This entire process would be completed automatically and usually in few seconds or less.

Of particular importance to this case is the dominant role played by the U.S. Government in the operation of the Internet’s root server system. That system consists of 13 root servers, 10 of which are located in the United States. A554, ¶ 41. The U.S. Government directly operates three of the 10 root servers and indirectly operates five others under contracts with private parties, including NSI under its cooperative agreement. Id., ¶¶ 41-43. Indeed, only two of the 10 root servers located in the United States are operated by entities that are not government contractors. Id., ¶ 44. The critical function played by these root servers is undisputed. "Universal name consistency on the Internet cannot be guaranteed without a set of authoritative and consistent roots. Without such consistency, messages could not be routed with any certainty to the intended address." U.S. Policy Statement, 63 Fed. Reg. at 31742.

In 1991-92, the NSF assumed responsibility for coordinating and funding the management of the non-military portion of the Internet. U.S. Policy Statement, 63 Fed. Reg. at 31742. At about the same time, Congress gave the NSF statutory authority to allow commercial activity on its high-speed NSFNET network. A857. With these added responsibilities, the NSF solicited competitive proposals in March 1992 to provide Internet registration services to non-military users of the Internet. A550, ¶ 30; A440-A446.

In response to that solicitation, NSI submitted a comprehensive proposal to provide those services. See A447-A487 (excerpts). NSI’s proposal expressly contemplated that NSI would maintain the root zone file as one of its services:

The NSF accepted NSI’s proposal. In 1993, the NSF and NSI entered into Cooperative Agreement No. NCR-9218742 (the "Cooperative Agreement," reprinted at A488-A502), which incorporated by reference NSI’s proposal as part of its terms. A493, Art. 3, ¶ A. Under the Cooperative Agreement, NSI agreed to provide registration services as an "Internet Registry" (or "IR") for a five-year period, beginning April 1, 1993 and ending March 31, 1998, with a six-month "flexibility period" at the end that extended the term of the agreement until September 1998. The Cooperative Agreement stipulated that NSI was to provide registration services to non-military Internet users in accordance with the provisions of RFC 1174. Id., Art. 3, ¶ C.

The Cooperative Agreement gave NSI primary responsibility for carrying out the tasks assigned to it, subject to oversight and monitoring by the NSF. A495, Art. 6, ¶¶ A and B. In addition, the NSF had responsibility for approving significant program changes and for contacting and negotiating with federal agencies and other members of the Internet community:

Contrary to the repeated contention in PGMedia’s brief ("Pl. Brief" at 18, 31, 33), NSI possessed no unilateral discretion as an Internet Registry to add new TLDs to the root zone file. As set forth in RFC 1591, which superseded RFC 1174:

RFC 1591 also stated that "it is extremely unlikely that any other TLDs will be created." A511, ¶ 1.

NSI’s role as custodial administrator of the contents of the root zone file is also confirmed by the functions NSI actually has performed in its capacity as an Internet Registry. Since 1993, NSI has operated the "A" root server, which is the "primary" root server that contains the latest changes to the root zone file. A389, ¶ 26. The "A" root server, however, is just one of the 13 root servers that comprise the Internet’s root server system and that are used for redundancy and load balancing purposes. A391, ¶ 30. Each of the root servers contain identical copies of the root zone file listing all TLDs. A389-A390, ¶ 27. NSI is responsible for making available an updated version of the root zone file on a nightly basis so that the other root servers may contain identical information. A397-A398, ¶¶ 5, 7.

Between 1993 and 1998, no new "generic" TLDs were added to the Internet. A401, ¶ 22. The only new TLDs added during that period were approximately 125 two-letter Country Codes. A387, A394, ¶¶ 20, 42. NSI had no say in the decision to add any of those ccTLDs to the Internet; rather, NSI simply acted on the instructions it received from IANA. A392, ¶ 33; A394, ¶ 42.

The Explosive Growth of the Internet and PGMedia’s Demand for New gTLDs

At the time NSI entered into the Cooperative Agreement with the NSF, the registration of Internet domain names was far from a bustling activity. As of March 1992, the total number of registered second-level domain names was less than 4,000, and requests to register new domain names averaged less than 230 per month. A442. In contrast, by mid-1998, the total number of second-level domain names registered in the .com TLD alone exceeded 2.4 million names, and NSI was registering on average several thousand new domain names each day. A553, ¶ 40. This extraordinary growth in the registration of second-level domain names in all TLDs continues today. According to statistics compiled by Net Names, a London-based domain name registrar, a total of more than 9 million second-level domain names are registered in all TLDs as of late July 1999, with second-level domain names registered in the .com TLD alone accounting for over 60% of all registered names.

This rapid growth in second-level domain name registrations reflects an even more explosive growth in Internet usage. A 1998 report by the DOC estimated that the number of Internet users had grown from about 3 million in 1994 to more than 100 million users by the end of 1997 and that the amount of traffic on the Internet was increasing at a current rate of about 100% every 100 days.

This transformation of the Internet into a global communication medium has greatly increased the size of the Internet community, as well as the diversity and intensity of views held by it members. Perhaps no issue has generated as passionate an expression of diverse, and often conflicting, views as has the issue of whether, when and how new gTLDs should be added to the Internet. A recent report by the World Intellectual Property Organization had this to say about that debate:

The debate over the addition of new gTLDs began in earnest in late 1996 when a group of Internet engineers calling itself the International Ad Hoc Committee, or "IAHC," proposed to create seven new gTLDs to be administered by a private consortium of domain name registrars that would be based in Switzerland. U.S. Policy Statement, 63 Fed. Reg. at 31743. The IAHC proposal received strong support from some members of the Internet community and equally strong criticism from others. Id. The proposal was criticized both on the merits and "for lacking participation by and input from business interests and others in the Internet community." Id. NSI was among those that voiced public criticism of the IAHC proposal . A316-A328. In providing a detailed critique of the IAHC proposal and suggesting an alternative plan "based in free market competition" (A321), NSI emphasized that

The controversy provoked by the IAHC proposal did not go unnoticed by the U.S. Government. In March 1997, the NSF and other federal agencies formed an interagency working group to study "domain name problems." A555, ¶ 46.

On March 11, 1997, just as this federal working group was beginning its study of domain name issues, PGMedia sent a letter to NSI demanding that NSI add to the root zone file nearly 500 new gTLDs. A358-A359. NSI’s outside general counsel responded to PGMedia’s demand on March 12 by informing PGMedia that, in conformity with RFC 1591, NSI "takes its direction from, and is under the authority of, the Internet Assigned Numbers Authority . . ." A360. NSI also forwarded PGMedia’s demand to IANA and asked IANA on March 27 to confirm that NSI could make the requested changes to the root zone file only at the direction of IANA. A362-A363. To NSI’s surprise, in light of IANA’s public statements about its asserted authority, IANA’s legal counsel at the University of Southern California replied on April 4 by flatly denying that IANA exercised any such direct authority over NSI. A362.

Faced with that response by IANA and the pendency of PGMedia’s antitrust claim in this action, NSI formulated in early June 1997 a proposal to add new gTLDs to the root zone file. A393, ¶ 39. On June 10, 1997, NSI submitted its proposal to the NSF for its review and approval, since it constituted a "significant program change" requiring NSF approval under Condition No. 8 of the NSF’s General Conditions. Id. (A copy of NSI’s June 10 letter has been inserted as pages A365a through A365d of the Joint Appendix.) NSI’s proposal was sweeping. NSI would permit PGMedia and others who met certain minimum qualifications to submit as many gTLD applications as they desired, and those new gTLDs would be included in the root zone file on a first-come first-served basis. A365c, ¶ 1. NSI explained to the NSF the dilemma it faced, which prompted this proposal:

On June 25, 1997, the NSF rejected NSI’s proposal. A366. The NSF stated that it "is currently discussing with several federal agencies many of the governance and authority issues raised in your letter" and that "the addition of any new TLDs at this time would be destabilizing and premature." Id. The NSF’s June 25 letter concluded with the following directive:

On July 10, 1997, NSI’s Chief Litigation Counsel wrote the NSF to seek clarification as to whether the passage just quoted was "a ‘mere request,’ rather than a contractual directive." A367. A month later, in a letter dated August 11, the NSF made clear that the language in question was intended to be a directive by the NSF under the Cooperative Agreement and set forth the NSF’s contractual authority to issue its directive. A369.

The NSF’s June 25, 1997 directive to NSI was issued to maintain the status quo while the U.S. Government studied the future management of the Domain Name System. A555-A556, ¶ 47. On July 1, 1997, President Clinton directed the DOC to take the lead in conducting that study. The next day, the DOC solicited public comment on a variety of issues relating to the DNS, including the creation of new gTLDs. During the comment period, more than 430 public comments were received, including comments from PGMedia. In early 1998, the DOC issued a draft "Green Paper" that proposed rulemaking to privatize the management of the DNS and solicited additional public comment. One of the proposals made in the "Green Paper" was that five new gTLDs be added to the Internet during the transition period to private management of the DNS. 63 Fed. Reg. at 8831. More than 650 public comments on the "Green Paper" were received, including, once again, comments from PGMedia in favor of unlimited new gTLDs and comments from others who strongly opposed the proposal to add five new gTLDs during the transition period. Those public comments were considered by the DOC in formulating the Government’s final Policy Statement, published on June 10, 1998. U.S. Policy Statement, 63 Fed. Reg. at 31743-48.

As noted earlier, the Policy Statement proposed that a new nonprofit corporation be formed that would gradually take over certain management functions of the DNS from the U.S. Government during a two-year transition period ending no later than September 2000. Id. at 31744. Among its responsibilities, the proposed new corporation would have authority to oversee operation of the Internet root server system and to make policy decisions about adding new gTLDs to the root zone system. Id. at 31749.

The Policy Statement emphasized the importance of having those functions handled in a responsible and coordinated fashion. Of particular significance to this case, the Policy Statement stated:

31749.

The Policy Statement also responded specifically to PGMedia’s position "that the market for a large or unlimited number of new gTLDs should be opened immediately," by warning: "At least in the short run, a prudent concern for the stability of the system suggests that expansion of gTLDs proceed at a deliberate and controlled pace to allow for evaluation of the impact of the new gTLDs and well-reasoned evolution of the domain space." Id. at 31746.

The Policy Statement further observed that "the comments evidenced very strong support for limiting government involvement during the transition period on the matter of adding new gTLDs." 63 Fed. Reg. at 31746. Accordingly, the Policy Statement abandoned the "Green Paper’s" proposal to add five new gTLDs during that transition period and instead declared that "the U.S. Government will not implement new gTLDs at this time." Id.

The process of implementing the Policy Statement’s privatization plan began within months after that plan was announced and continues today. That process has included the following:

First, on September 9, 1998, the NSF and the DOC entered into a Memorandum of Agreement under which the NSF transferred to the DOC responsibility for administering the Cooperative Agreement with NSI. A793-A795. This was done "to ensure the seamless and stable transition from the existing framework of Internet administration to a private sector management structure as set forth in the Statement of Policy." A793.

Second, on October 6, 1998, NSI and the DOC entered into Amendment No. 11 to the Cooperative Agreement, pursuant to which the term of the Cooperative Agreement was extended to September 30, 2000 at the latest. A796. Under Amendment No. 11, NSI agreed to plan "for the development, deployment and licensing by NSI of a mechanism that allows multiple registrars to accept registrations for the generic top level domains (gTLDs) for which NSI acts as registry." Id. In addition, of direct significance to this case, Amendment No. 11 continued in place the NSF’s June 1997 directive concerning NSI’s administration of the root zone file by providing:

Third, in the fall of 1998, the Internet Corporation for Assigned Names and Numbers ("ICANN") was formed in California as a private, nonprofit corporation in contemplation that it would be designated by the Government to perform the functions of the new corporation described in the June 1998 Policy Statement. A790, ¶ 4. In furtherance of that objective, the DOC and ICANN entered into a Memorandum of Understanding, dated November 25, 1998, in which they agreed to

ICANN also agreed to "collaborate on the design, development and testing of a plan for introduction of competition in domain name registration services" (A827, Art. V (C) (3)), and to "collaborate on the design, development and testing of a plan for creating a process that will consider the possible expansion of the number of gTLDs." A828, Art. V (C) (9).

Finally, in April 1999 — just a few weeks after judgment was entered in this action — ICANN designated five companies (including America Online and France Telecom) to participate in a "testbed phase" of a shared registry system developed by NSI that would enable those companies to offer competitive second-level domain name registration services in the three gTLDs (.com, .net and .org) for which NSI offers registration services. In addition to the five testbed participants, ICANN also announced that 29 other companies had satisfied ICANN’s accreditation criteria and were expected to be accredited to compete as domain name registrars upon completion of the testbed phase. Id. Among the 29 companies identified in ICANN’s announcement was Name.Space, Inc., the plaintiff in this action.

It has long been settled law that the U.S. Government and its agencies and instrumentalities are absolutely immune from liability under the antitrust laws. This "federal instrumentality" doctrine also provides absolute immunity to private parties when they act under contract with a government agency to implement a government policy or program in a manner authorized or approved by that agency. As long as the challenged conduct is the product of a government decision, rather than a privately-made commercial decision, it is of no antitrust significance whether that decision is carried out by a government entity or private actor; in either case, the "federal instrumentality" doctrine provides absolute antitrust immunity.

The District Court correctly interpreted and applied the "federal instrumentality" doctrine to bar PGMedia’s antitrust claim against NSI. Judge Patterson’s ruling is fully in accord with a long line of cases that have applied this and other "government action" immunity doctrines in recognition that the antitrust laws should not regulate government policy decisions or the involvement of private parties in that process.

PGMedia advances a string of flawed arguments in an effort to attack the "federal instrumentality" doctrine and the District Court’s application of that doctrine in this case. PGMedia first purports to find an inconsistency between the "federal instrumentality" doctrine and the Supreme Court’s decision in Otter Tail, when no such inconsistency exists. PGMedia then claims that this Court’s decision in Strobl restricts the availability of implied antitrust immunity for private parties only to situations involving a "pervasive regulatory scheme," when Strobl says no such thing. That case involved an entirely different immunity doctrine raised in an entirely different factual context; Stobl has no bearing on the application of the "federal instrumentality" doctrine in this case. PGMedia next accuses the District Court of applying the "federal instrumentality" doctrine in a manner that lacks support in the case law; but that accusation is refuted both by Judge Patterson’s actual ruling and by the cases cited by PGMedia itself, which are fully in accord with that ruling. Finally, PGMedia points to obiter dictum in the D.C. Circuit’s decision in Thomas, which expressed doubt about the application of the "federal instrumentality" doctrine in situations in which a private party has discretion to perform a government contract in either a procompetitive or anticompetitive manner. The "federal instrumentality" doctrine, however, supplies a clear answer. Only if the contractor performs the contract in a manner authorized, approved or directed by the relevant government authority would the doctrine provide antitrust immunity.

This case presents a paradigm situation for application of the "federal instrumentality" doctrine. In response to PGMedia’s antitrust claim, NSI proposed to the NSF that it be allowed under its Cooperative Agreement to add new gTLDs to the Internet’s root zone file, but the NSF rejected that proposal and instead instructed NSI to add no new gTLDs. That instruction reflected a policy decision by the NSF that the status quo should be maintained while the Government studied and implemented changes in the management of the Domain Name System. NSI’s compliance with the NSF’s directive and with the DOC’s subsequent reaffirmation of that directive is protected from antitrust challenge under the "federal instrumentality" doctrine. Indeed, it is difficult to conceive of a clearer case for the application of that doctrine than this one.

The District Court Properly Ruled that PGMedia’s

"[T]he antitrust laws regulate business, not politics . . .." This proposition has guided the courts in formulating a series of immunity doctrines that protect government entities and private parties from antitrust attack based on their interactions. For example, the "Noerr" doctrine protects private parties from antitrust challenge based on their efforts to seek government action, while the "state action" and "federal instrumentality" doctrines protect the process of implementing government policies at both the state and federal levels by both government entities and private actors. Even though, as discussed below, the "federal instrumentality" doctrine provides broader protection for federal instrumentalities than does the "state action" doctrine for state instrumentalities, both doctrines share a common feature when applied to the activities of private parties: Those activities are entitled to antitrust immunity when they are undertaken as part of a government policy or program and in a manner authorized or approved by the relevant government authority.

This case involves precisely that situation. PGMedia’s antitrust claim attacks NSI’s compliance with an express policy directive of the NSF and the DOC given to NSI under its Cooperative Agreement and specifically included in the formal October 1998 Amendment to that Cooperative Agreement. The District Court carefully reviewed NSI’s relationship with those federal agencies under the Cooperative Agreement, the statutory underpinnings for that agreement, and the challenged root zone administration activities carried out by NSI under that agreement. Based on that review, Judge Patterson concluded that PGMedia’s antitrust claim against NSI was barred by the "federal instrumentality" doctrine. That conclusion is unassailable.

The "federal instrumentality" doctrine is rooted in nearly 60 years of jurisprudence, which has repeatedly reaffirmed that the antitrust laws do not apply to the U.S. Government under any circumstances. The seminal case on this point is United States v. Cooper Corp., 312 U.S. 600 (1941), in which the Supreme Court held that the U.S. Government is not a "person," as that term is used in the antitrust laws, and therefore could not be sued under the antitrust laws or maintain an antitrust action for treble damages. Congress responded to the Court’s decision in Cooper Corp. by adding a new section to the Clayton Act expressly authorizing damage actions by the U.S. Government. Significantly, Congress did not change the antitrust laws to subject the U.S. Government to potential antitrust liability.

Building on Cooper Corp. and Congress’s response to that decision, later cases have held that federal agencies and instrumentalities enjoy the same immunity from antitrust liability as does the U.S. Government itself. The leading case recognizing the "federal instrumentality" doctrine is Sea-Land Serv., Inc. v. Alaska R.R., 659 F.2d 243, 246 (D.C. Cir. 1981), cert. denied, 455 U.S. 919 (1982) ("we hold that the United States, its agencies and officials, remain outside the reach of the Sherman Act"). This immunity is absolute and unconditional. See Howes Leather Co. v. Golden, 681 F. Supp. 6, 15 (D.D.C. 1987) ("the government, its agencies, and officials, are absolutely immune from antitrust liability per se"); Jackson, 944 F. Supp. at 425 ("Federal instrumentalities enjoy absolute immunity from anti-trust suits").

PGMedia finds it "perverse" that broader immunity is provided by the "federal instrumentality" doctrine than by the "state action" doctrine. Pl. Mem. at 17. There is nothing at all perverse that the two doctrines provide different levels of antitrust immunity. That is simply a product of their different statutory and doctrinal underpinnings. Since this is something that appears to have eluded plaintiff, we take a few paragraphs to explain the differences and one similarity between the two doctrines and why that is so.

Unlike the U.S. Government, state governments are deemed "persons" subject to potential liability under the antitrust laws. See City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 395 (1978). Even so, beginning with the landmark case of Parker v. Brown, 317 U.S. 341 (1943), the Supreme Court has fashioned a limited "state action" antitrust exemption, based on principles of federalism and state sovereignty, for anticompetitive programs implemented by the state in its regulatory capacity as sovereign. 317 U.S. at 350-51. Where, however, the state is acting in a non-regulatory capacity, such as acting as a commercial participant in a business activity, the "state action" exemption is generally unavailable. See Omni Outdoor Advertising, 499 U.S. at 374-75. The antitrust exemption afforded state instrumentalities, such as municipalities, is limited even further. "[T]o obtain exemption, municipalities must demonstrate that their anticompetitive activities were authorized by the State ‘pursuant to state policy to displace competition with regulation or monopoly public service.’ " Town of Hallie v. City of Eau Claire, 471 U.S. 34, 38-39 (1985) (quoting City of Lafayette, 435 U.S. at 413).

Thus, at the government-entity level, the antitrust immunity provided by the "state action" doctrine is considerably narrower than the absolute immunity provided by the "federal instrumentality" doctrine. States are immune only when acting in a regulatory capacity, whereas the U.S. Government is immune in all capacities, including a commercial capacity. See Sea-Land, supra (U.S. Government ownership and operation of a commercial railroad entitled to absolute antitrust immunity). Likewise, state instrumentalities are immune only for actions authorized by the state itself pursuant to a state policy to displace competition with regulation, whereas federal instrumentalities enjoy at all times the same absolute antitrust immunity as the U.S. Government.

In one respect, however, the "federal instrumentality" and "state action" doctrines are similar. Both doctrines apply not only to government entities, but also to private parties that are carrying out a government policy or program in a manner authorized or approved by the relevant government authority. Having said that, significant differences still remain in the nature and scope of antitrust immunity provided by each doctrine for the activities of private parties.

For example, in the "state action" context, the private party is afforded only the same limited antitrust immunity as the state and only when that party is acting under state supervision and pursuant to a state authorized regulatory scheme. See, e.g., Southern Motor Carriers Rate Conf., Inc. v. United States, 471 U.S. 48 (1985) (private parties immune under "state action" doctrine for activities in compliance with state regulation of intrastate trucking tariffs).

By contrast, the "federal instrumentality" doctrine provides absolute antitrust immunity and has been applied to private parties acting under contracts with federal agencies to carry out a wide variety of government policies and programs in both a regulatory and non-regulatory context. See, e.g., Sakamoto v. Duty Free Shoppers, Ltd., 764 F.2d 1285, 1288-89 (9th Cir. 1985), cert. denied, 475 U.S. 1081 (1986) (exclusive contract between federal instrumentality and private party to sell duty free merchandise at airport); Greensboro Lumber Co. v. Georgia Power Co., 844 F.2d 1538, 1541 (11th Cir. 1988) (loan agreements between federal agency and power companies requiring power companies to enter into long-term requirements contracts with others); Champaign-Urbana News Agency, Inc. v. J.L. Cummins News Co., 632 F.2d 680, 692 (7th Cir. 1980) (contract between instrumentality of U.S. military and private party to supply books and magazines at military base exchanges at reduced prices); Sea Air Shuttle Corp. v. Virgin Islands Port Auth., 782 F. Supp. 1070, 1072-75 (D.V.I. 1991) (exclusive lease to provide seaplane service at ramps owned by federal instrumentality); I T & E Overseas, Inc. v. RCA Global Communications, Inc., 747 F. Supp. 6 (D.D.C. 1990) (private company providing long distance telephone service pursuant to contract with a federal instrumentality); Medical Ass’n of Alabama v. Schweiker, 554 F. Supp. 955 (M.D. Ala.), aff’d per curiam, 714 F.2d 107 (11th Cir. 1983) (private entities acting under government contract and with financial support from government agency to provide low cost medical services to rural areas).

Moreover, three different district courts, in addition to the court below, have applied the "federal instrumentality" doctrine to the functions performed by NSI under its Cooperative Agreement. Thomas v. Network Solutions, Inc. and National Science Foundation, 2 F. Supp. 2d 22, 38 (D.D.C. 1998), aff’d on other grounds, 176 F.3d 500 (D.C. Cir. 1999); Beverly v. Network Solutions, Inc., C-98-0337-VRW, 1998 WL 320829 *4 (N.D. Cal. 1998); Watts v. Network Solutions, Inc., IP 98-1529-CH/G, slip opinion at 5-6 (S.D. Ind. May 7, 1999).

Practical and policy considerations explain why the "federal instrumentality" doctrine applies to private parties in such circumstances. As a practical matter, the federal government frequently must rely on private entities for needed expertise or manpower to carry out its policies or programs. The federal government’s ability to do so would be seriously impaired if those private entities were subject to possible antitrust liability for implementing government programs that would otherwise be entitled to absolute immunity if implemented directly by the government itself. Thus, as a policy matter, courts have adopted the sensible rule that "private parties acting in compliance with clearly articulated government policies and programs are immunized from antitrust liability to the same extent as the government entity." I T & E Overseas, 747 F. Supp. at 1l. This same rule has also been described in slightly different language by other courts, which have said that "private parties to the extent they are acting at the direction or with the consent of federal agencies also fall outside the pale of the [Sherman] [A]ct’s prohibition." Medical Ass’n of Alabama, 554 F. Supp. at 966.

Regardless of the words used, these courts have all recognized that the "federal instrumentality" doctrine provides absolute antitrust immunity to private parties when they are carrying out a government policy or program in a manner authorized or approved by the government.

Once the nature and scope of the "federal instrumentality" doctrine are understood, the fatal flaws in PGMedia’s sundry arguments in opposition to that doctrine become readily apparent.

PGMedia first argues that the doctrine is "inconsistent" with the Supreme Court’s decision in Otter Tail Power v. United States, 410 U.S. 366 (1973). Pl. Brief at 16, 22-23. No such inconsistency exists. In Otter Tail, the defendant utility company sought to take advantage of restrictions it imposed in its power distribution contracts with various suppliers of power, including a federal agency, which prevented them, against their wishes, from "wheeling" electricity to communities formerly served by Otter Tail. 410 U.S. at 371. The Court agreed with the lower court’s characterization of Otter Tail’s contractual restrictions as "in reality, territorial allocation schemes," and rejected Otter Tail’s claim that its contract with the federal agency was entitled to antitrust immunity. 410 U.S. at 378. Nothing in Otter Tail is inconsistent with the "federal instrumentality" doctrine. No antitrust immunity was available to Otter Tail because it sought to advance its own commercial interests by imposing and enforcing contractual restrictions on a federal agency against that agency’s wishes. 410 U.S. at 379. By contrast, the "federal instrumentality" doctrine applies when the federal agency is in the "driver’s seat" and the private party is simply carrying out the agency’s policy or program in the manner prescribed by that agency. In short, the facts in Otter Tail are nearly the exact opposite of facts that would support application of the "federal instrumentality" doctrine.

PGMedia also claims (Pl. Brief at 22), that the "federal instrumentality" doctrine runs afoul of the admonition in Otter Tail that "government contracting officers do not have the power to grant immunity from the Sherman Act." 410 U.S. at 378-79. This is nonsense. The "federal instrumentality" doctrine applies by operation of law, not by the grace of government functionaries. Its application depends upon the role of the government agency in overseeing the private party’s performance of the contract and whether the challenged conduct advances some statutory purpose of that agency. The Court in Otter Tail recognized as much in the very next sentence that follows the passage quoted by PGMedia:

410 U.S. at 379.

PGMedia next points to this Court’s decision in Strobl v. New York Mercantile Exchange, 768 F.2d 22 (2d Cir.), cert. denied, 474 U.S. 1006 (1985), and several earlier Supreme Court cases, for the purported proposition that implied antitrust immunity is available "only where there is a ‘pervasive regulatory scheme.’" Pl. Brief at 21. PGMedia is wrong to suggest that implied antitrust immunity is available only in such circumstances, and Strobl says no such thing. Indeed, if plaintiff were right, decades of Supreme Court case law conferring implied antitrust immunity under the Noerr doctrine would be in error because Noerr immunity is not dependent on the existence of any regulatory scheme – let alone a "pervasive" regulatory scheme. The same is true for the "federal instrumentality" doctrine.

Strobl and its Supreme Court forebears deal with an entirely different kind of antitrust immunity that has nothing to do with this case. Those cases involved purely private conduct engaged in by entities that were subject to federal regulation (e.g., stock and commodities exchanges and members), and the issue presented in each case was whether the challenged conduct was required by a sufficiently pervasive regulatory scheme so as to be immune from antitrust attack under the so-called "regulatory exemption." In Champaign-Urbana News, supra, the plaintiff made a similar argument in challenging the "federal instrumentality doctrine" and cited some of the same cases as PGMedia does here. The Seventh Circuit rejected that argument, stating:

632 F.2d at 691-92. Like Champaign-Urbana News, this case involves no regulatory scheme or any claim of regulatory exemption under the antitrust laws. The "federal instrumentality" doctrine provides antitrust immunity to private parties because they are acting for the federal government, not because they are caught in a conflict between a regulatory scheme and the antitrust laws.

Plaintiff also accuses the District Court of interpreting the "federal instrumentality" doctrine so broadly as to grant absolute antitrust immunity to all private contractors under all government contracts: "Under the district court’s approach, private contractors enjoy complete antitrust immunity merely because they have a contract with the government, without regard to whether the government approved or directed the challenged anticompetitive conduct." Pl. Brief at 24. This characterization of the District Court’s ruling bears no resemblance to what the court below actually held. Judge Patterson adopted the formulation of the "federal instrumentality" doctrine set forth in Judge Sporkin’s decision in I T & E Overseas, which requires that the private party be "acting in compliance with clearly articulated government policies or programs." A854 (emphasis added). The word "compliance" is key. Only if the private party is acting in a manner approved, authorized or directed by the relevant government agency would that party be acting in "compliance" with the policy or program of that agency.

Finally, PGMedia takes issue with the District Court’s observation that "the [federal instrumentality] doctrine protects the actions of the monopolist as well as the monopoly itself." A863 (emphasis in original). According to plaintiff, the District Court stands alone in applying the doctrine to immunize the conduct of a government contractor that is directed against a competitor, rather than confining the doctrine to provide immunity only as to the government contract itself. Pl. Brief at 26-31. PGMedia complains that this represents a "key failure" of Judge Patterson’s analysis and that it lacks adequate case law support. Id. 29.

PGMedia is in error when it asserts that no court other than the court below has applied the "federal instrumentality" doctrine in cases that involved allegations that a private contractor engaged in conduct injurious to a competitor. Indeed, plaintiff’s assertion is refuted by some of the very cases it cites. See Pl. Brief at 27-28. For example, in Champaign-Urbana News, supra, the plaintiff complained that a private wholesaler acting under a contract with the U.S. Army and Air Force Exchange Service caused injury to the plaintiff in violation of the Robinson-Patman Act because the wholesaler sold books and magazines at a military base exchange at lower prices than it was selling those same items to other customers. In applying the "federal instrumentality" doctrine to the challenged conduct, the Seventh Circuit held: "If a particular purchase is exempt from liability under the antitrust laws, both the seller and the purchaser in the transaction are exempt." Champaign-Urbana News, 632 F.2d at 693. Similarly, in Sakamoto, the district court applied, and the Ninth Circuit affirmed, the "federal instrumentality" doctrine with respect to an agreement between a federal instrumentality and a private company that gave the latter the exclusive right to sell duty-free items at the Guam airport, even though the plaintiff alleged that the private contractor was enforcing the contract against the plaintiff and other competitors to prevent them from delivering items at the airport. Sakamoto, 613 F. Supp. at 381. Finally, in I T & E Overseas, supra, the district court applied the "federal instrumentality" doctrine to a government contract to provide long-distance telephone service to and from Guam, notwithstanding allegations that the Guam authorities and the private contractor engaged in a pattern of discriminatory conduct under their contract that was directed against the plaintiff, including "secret agreements" to develop and implement "access features" that were "specifically intended to satisfy [the private contractor’s] particular requirements to the exclusion and detriment of I T & E." I T & E Overseas, 747 F. Supp. at 10.

By claiming that the "federal instrumentality" doctrine provides antitrust immunity only for the government contract itself, and not for the private party’s conduct under that contract, PGMedia disregards what the doctrine is all about. The doctrine protects the conduct of private parties because that conduct is what implements the government policy or program at issue; indeed, that is the reason for entering into such contracts in the first place. Just as importantly, the doctrine requires that the private party’s challenged conduct be the product of a government decision, not a private one. This latter aspect of the doctrine answers the issue of apparent concern to the D.C. Circuit in Thomas, supra, which PGMedia alludes to several times in its brief. See Pl. Brief at 17-18, 31. The Thomas court questioned the application of the "federal instrumentality" doctrine in a situation where "[a] contractor might be free to perform the contract in any number of ways, only one of which is anticompetitive." 176 F.3d at 509. In that situation, the doctrine would not apply to protect the contractor’s own private decision to perform the contract in an anticompetitive manner. Only if the federal agency authorized or directed the contractor’s challenged conduct under the contract would the contractor be able to invoke the "federal instrumentality" doctrine. As discussed in the next section, the instant case presents just the opposite of the situation posited by the D.C. Circuit in Thomas. Here, NSI sought to act "procompetitively" by proposing to the NSF that it be allowed to add to the Internet’s root zone file new gTLDs as requested by PGMedia, but the NSF told NSI not to do so.

It is difficult to imagine a more compelling case for application of the "federal instrumentality" doctrine than this one. This case features all of the following: (i) a long history of government support and oversight of the Internet; (ii) a series of Congressional directives to the NSF to support access to the Internet; (iii) a Cooperative Agreement between the NSF and NSI to carry out the NSF’s statutory mandate; (iv) a growing public debate over the addition of new gTLDs to the Internet; (v) a directive by the NSF to NSI that it add no new gTLDs while the Government considers plans to privatize certain Internet Domain Name System functions; (vi) a year-long Government study of DNS issues, with active public participation, which culminates with the issuance of a definitive Policy Statement concerning the gradual transfer of DNS management functions to the private sector; and, finally, (vii) the start of implementation of the Government’s privatization plan under oversight by the DOC, which takes over from the NSF responsibility for the Cooperative Agreement with NSI and continues in place the NSF’s directive to NSI that it add no new gTLDs without prior Government approval.

PGMedia says that "the issue at the heart of this case is who decides which . . . gTLDs appear[] on the ‘A’ root server controlled by NSI each day." Pl. Brief at 7. The answer is clear and undeniable. The U.S. Government makes that decision until such time as the new Internet corporation (ICANN) assumes that responsibility, with the approval of the U.S. Government. That has been true since at least June 25, 1997, when the NSF first instructed NSI to "take NO action" to add new gTLDs to the root zone file unless instructed to do so by the NSF. A366. NSI has complied with that directive and with the similar directive contained in the October 1998 Amendment No. 11 to the Cooperative Agreement. A800 ("While NSI continues to operate the primary root server, it shall request written direction from an authorized USG official before making or rejecting any modifications, additions or deletions to the root zone file").

NSI’s compliance with those directives is entitled to absolute antitrust immunity under the "federal instrumentality" doctrine. Those directives were issued by the Government to protect the Government’s interest, not NSI’s commercial interests. In the case of the directive contained in Amendment No. 11, PGMedia has stipulated to its lawfulness. See A791, ¶ (8) (c). As to the NSF’s June 1997 directive, PGMedia points to nothing in the record that casts doubt on the validity of the reasons given by the NSF for its directive. See Declaration of Dr. George Strawn, ¶¶ 47-50, A555-A557. In any event, the NSF’s directive plainly served a legitimate government interest by preventing the addition of new gTLDs that could prejudice the Government’s ability to formulate and implement its plan for dealing with that contentious issue.

In seeking to deprive NSI of antitrust immunity for its compliance with specific U.S. Government direction, PGMedia contrives an argument that plays fast and loose with Judge Patterson’s decision below. Plaintiff repeatedly asserts that, even after the NSF’s June 1997 directive, NSI possessed "discretion to determine whether or not to add new TLDs." Pl. Brief at 18, 31 and 33. As purported support for that assertion, plaintiff relies entirely on the following passage from Judge Patterson’s decision, which reads in pertinent part:

Based on that passage, PGMedia baldly asserts that "it is not contradicted that, at least until Amendment No. 11, NSI still had ‘discretion’ to determine whether to add new gTLDs to the root server." Pl. Brief at 33. This is patently untrue. Inexplicably, plaintiff fails to mention in its brief that the reason Judge Patterson focused on the significance of Amendment No. 11, rather than the NSF’s earlier June 1997 directive, was because counsel for PGMedia and NSI had expressly stipulated that the NSF’s directive was no longer relevant to the issues before the District Court. See A790, ¶ 8 ("In light of the developments set forth above, the parties agree that the NSF’s June and August 1997 written directives to NSI, which were a subject of the parties’ summary judgment briefs, are no longer relevant to the pending motions").

Having been told by the parties that the NSF’s directive was no longer relevant, it is understandable that Judge Patterson did not believe it necessary to address the significance of that directive in his decision. It is quite another thing, however, for plaintiff now to claim that the District Court’s failure to address the NSF’s directive somehow represents a judicial determination that the directive had no effect on NSI’s "discretion" to add new gTLDs to the root zone file. Basic candor to this Court should have dissuaded plaintiff from making that sort of argument.

The factual record is clear that whatever "discretion" NSI possessed to add new gTLDs to the Internet, it was not exercised in an anticompetitive manner against PGMedia, and it was subject to direct Government control beginning in June 1997. In March 1997, when PGMedia first demanded that NSI add hundreds of new gTLDs to the root zone file, NSI informed PGMedia that IANA was responsible for making that decision, and NSI promptly forwarded PGMedia’s demand to IANA for its consideration. A360. When IANA disavowed any authority over NSI’s handling of requests for new gTLDs, NSI formulated its own policy. That policy can hardly be described as "exclusionary" or "anticompetitive." NSI proposed to allow PGMedia and any other minimally qualified applicants to add on a first-come first-served basis as many new gTLDs to the Internet as they desired. A365c,

¶ 1. On June 10, 1997, NSI submitted its proposal to the NSF for its approval. A365a-A365d. Two weeks later, on June 25, the NSF rejected NSI’s proposal and instead issued its directive that NSI add no new gTLDs to the root zone file. A366. Since June 1997, NSI has acted in compliance with that directive and with its successor directive contained in Amendment No. 11.

Finally, plaintiff suggests obliquely that an issue supposedly exists as to the authority of the NSF to issue its directive, claiming that the "district court did not find that the agency had contractual authority to issue [it]." Pl. Brief at 32. Even PGMedia seems to have second thoughts about the wisdom of pressing this point, since it says in a footnote that this issue is "not raised in this appeal." Id. n.23. There are good reasons why this issue should be abandoned on appeal. The court below expressly found that the statutes under which the NSF functions "provide NSF clear authority to manage the DNS" (A857) and that the Cooperative Agreement gave the NSF oversight authority over NSI’s activities. A859; see also Cooperative Agreement, Art. 6, ¶ B at A495.

More fundamentally, PGMedia offers no explanation as to what NSF’s supposed lack of "contractual authority" has to do with PGMedia’s antitrust claim against NSI. The short answer is that it has no relevance at all. NSI’s immunity under the "federal instrumentality" doctrine does not depend upon the validity of the NSF’s authority to issue the directive. What is important for immunity purposes is that NSI’s challenged conduct was based on a Government directive, not a private decision by NSI. NSI cannot be stripped of its immunity when it acted in compliance with the NSF’s directive, even if the NSF somehow lacked "contractual authority" to issue that directive. Cf. Lease Lights v. Public Service Co. of Okl., 849 F.2d 1330, 1334 (10th Cir. 1988), cert. denied, 488 U.S. 1019 (1989) ("To rule otherwise would require regulated industries to seek judicial review of every order of a regulatory agency [for possible invalidity] to ensure that compliance does not later subject them to antitrust liability"); see also 1 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 228 at 520 (rev. ed. 1997) ("If the private defendant’s challenged conduct is the result of reasonable reliance on apparently lawful or even ambiguous government action, then immunity from treble damages should be available").

The foregoing application of the law to the facts in this case demonstrates the precision with which Judge Patterson ruled upon this matter. With respect to its administration of the root zone file, NSI does what it is told to do by the U.S. Government. Under the "federal instrumentality" doctrine,

NSI’s specific compliance with that direction is immune from antitrust liability.

For the foregoing reasons, the judgment of the District Court, which dismissed with prejudice the antitrust claim asserted against Network Solutions, Inc., should be affirmed.

__________________________________

SULLIVAN & CROMWELL

Of Counsel: 125 Broad Street

New York, NY 10004

HANSON and MOLLOY

1250 Eye Street, N.W.

Suite 701 Attorneys for Defendant-Appellee

Washington, D.C. 20005 Network Solutions, Inc.

(202) 842-1116

July 26, 1999