Suit Says Dot-Biz Registry is Illegal Lottery.

The companies responsible for doling out the Internet dot-biz names are conducting an illegal lottery, according to a lawsuit filed in the Superior Court of Los Angeles.

The suit, filed July 23 by three law firms looking to obtain class-action status for their case, targets L.A.-based Internet Corporation for Assigned Names and Numbers and its dot-biz registry Neulevel Inc. of Virginia, as well as 60 reselling registrars associated with Neulevel.

The lawsuit includes only two plaintiffs so far, including Glendale-based Skyscraper Productions LLC, a comedy traffic school that wants to obtain the "comicbook.biz" and "trafficschool.biz" names.

To register the dot-biz name, an interested party pays a $5 fee to be put into a pool of possible registrants. A "winner" is then picked from that pool. The process hurts small businesses, attorneys claim, because they may not have the finances to apply to the pool several times to better their chances of winning, attorneys claim.

"This really prejudices the individual who doesn't have infinite cash resources," said David Weeks, attorney with Westlake Village-based Masry & Vititoe which has partnered with Century City's Engstrom Lipscomb & Lack to handle the case. Both firms were involved in the highly publicized "Erin Brockovich" case. Joining in the dot-biz case is Seattle-based Newman & Newman.

"How's the small guy, the guy who wants to set up a dot-biz name, going to complete with someone who can apply a thousand times over?" Weeks said.

Lottery elements cited

The method includes three elements of a lottery: a prize, which is the dot-biz name; a consideration, which is the payment or fee collected by Neulevel and its constituents; and a chance, which is the pool in which a "winner" is selected, said Derek Newman of Newman & Newman.

A private organization cannot conduct a lottery by law, he said.

Neulevel executives did not return phone calls, but Jeffrey Neuman, the company's director of policy and intellectual property, issued a statement on the lawsuit July 26 claiming it was without merit.

ICANN spokeswoman Mary Hewitt said the firm cannot comment on the case, which, she added, has no merit. She said the firm has come up with 47 different processes used in registering names since its founding in 1998 and picks a different process each time in "trying to find the most equitable way" to register a domain name. "It's sort of like testing untested waters," she said.

Return of fees requested

The firms are asking that ICANN and the other defendants stop selling the dot-biz names using the lottery method and return the fees owed to those who have already registered through that method. About 2 million companies and individuals have already paid for dot-biz names that are scheduled to go online Oct. 1

The dot-biz name is the eighth top level domain name -- the name after the last period in a Web address -- to be offered up for potential buyers and the first to be sold exclusively to businesses.

ICANN may have two major defenses in battling the case, said Ben Mulcahy, a partner who handles sweepstakes and advertising law at Katten Muchin Zavis in Century City.

He said because ICANN was originally set up by the U.S. government, it may claim it is a governmental entity that, by law, can set up a lottery, like state-issued lotteries. ICANN was originally formed by the government to privatize the registering of domain names.

In addition, ICANN considers itself a nonprofit, and nonprofits are exempt from the lottery law, Mulcahy said. But those are the only two ways in which ICANN can claim it is legally selling the dot-biz names, he said.