Subject: FWD: Court: Domain fees appear illegal

From: [email-masked]
Date: Wed, 4 Feb 1998 11:01:17 -0500

This message was forwarded to you from ZDNet (http://www.zdnet.com) by [email-masked].

Comment from sender:
This is the money that was intended to be paying for IANA and the RFC Editor's office, and which is proposed as a funding source to moderate this list.

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   [TABLE NOT SHOWN] Court: Domain fees appear illegal

   WASHINGTON, Feb. 2 - A federal court Monday issued a temporary
   injunction barring the federal government from spending some $50
   million it has collected from the registration of Internet domain
   names. That money forms a pool of funds intended to be spent for
   improving the Internet. On Monday, the court sided with the plaintiffs
   in a lawsuit that claims those fees constitute an illegal tax.

   The money is part of a so-called "intellectual infrastructure fund,"
   which is funded by 30 percent of all fees paid to register an Internet
   domain name. Initial domain names cost $100; renewal of domain names
   is $50 annually. The remainder of registration fees goes to Network
   Solutions Inc. (NSOL) to cover its cost of maintaining the
   registration service.

   Network Solutions operates as a monopoly, stemming from a National
   Science Foundation government grant. That grant is supposed to end in
   March; the White House issued a proposal Jan. 30 that would move
   domain name registration into the private sector.

   In October, six domain-name holders filed suit in U.S. District Court
   alleging that the National Science Foundation had no authority to
   allow Network Solutions to collect any money in excess of its cost of
   providing the registration service. Further, the suit charged, the 30
   percent set-aside amounts to an unconstitutional tax.

   Judge Thomas Hogan said Monday that the plaintiffs "have made a
   significant showing that the (intellectual infrastructure fund) is an
   illegal tax."

   Hogan said there is "no litmus paper onto which the Court can drop a
   regulatory assessment such as this one, hoping to see whether the
   paper comes up blue for tax or pink for fee." Justice Department
   lawyers had argued in court that the domain-name registration fee was
   exactly that, a fee, because it was paid voluntarily and therefore
   couldn't be considered a tax.

   But Hogan disagreed, writing that "there is no dispute that the
   assessment (registration fee) is involuntary - it is automatically
   charged to every domain registration."

   In 1995 Network Solution's contract was amended to allow it to begin
   collecting fees for the registration process, which it had done for
   free since 1993, when its contract was issued. The registration fees
   set off a firestorm of criticism in the Internet community. The
   Intellectual Infrastructure Fund was supposed to be used for the
   betterment of the Internet for the community as a whole; however, no
   plan has ever developed on how to spend the money, which is held in
   escrow.

   Because no plan had been developed to spend the fund money, Congress
   rushed into the vacuum late last year and simply appropriated some $23
   million. Congress earmarked that money to be spent on the Next
   Generation Internet project, which President Bill Clinton highlighted
   in his recent State of the Union speech.

   "Under federal law, no independent executive agency - such as the
   National Science Foundation - can collect fees that exceed the cost of
   providing the service they are administering," said William Bode,
   attorney for the plaintiffs. "NSI, the agent of NSF, spends less than
   $5 to register domain names, yet it charges a registration fee of $100
   and renewal fees of $50 per year," he said.

   Network Solutions did not return calls for comment.

   Bode also argued that only Congress has the authority to tax and that
   no such authorization has taken place. The Justice Department argued
   that because Congress appropriated the $23 million from the
   infrastructure fund, it had essentially ratified the tax.

   Bode argued that ratification of a tax can't take place in
   authorization bills. Judge Hogan agreed, noting that ratification is a
   legislative function and that "it is well known that Congress does not
   normally legislate through appropriations bills." Hogan added:
   "Congress may have intended to grant NSF the authority to collect the
   assessment, but it has not effected a legal ratification."

   The suit also is seeking antitrust damages, alleging that the NSF
   violated the competition in contracting act when it allowed Network
   Solutions to begin collecting the $100 fee. Bode says the competition
   act requires the NSF to re-bid a new contract, not simply amend it.

   The temporary injunction "paves the way for our motion, which we'll
   file in two days, to require NSI to return all registration renewal
   fees which exceed the cost of providing that service," attorney Bode
   said. "We think that cost [to NSI for the registration process] is
   significantly less than $10, probably $2 to $3," he said, "which would
   mean that there would be a refund of approximately $100 million in our
   judgment."

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From: "Dick St.Peters" <[email-masked]>
Date: Wed, 4 Feb 1998 12:44:54 -0500

>    in a lawsuit that claims those fees constitute an illegal tax.

Sometimes it's necessary to take a stand, so ...

I hereby declare this portion of the fees collected from me to be a
voluntary contribution.  In addition, my service will not provide DNS
for clients unwilling to make such a contribution.

Further, to the extent we can find a way to implement this, we will
refuse access to or from domains not making this contribution.

I consider funding of IANA to be an excellent use of my contribution.
Given that this judge's ruling appears to prevent any government
strings from being attched to this fund, I'd also like to see some of
it go to maintaining the Internet Software Consortium

--
Dick St.Peters, [email-masked] 
Gatekeeper, NetHeaven, Saratoga Springs, NY, 1-800-910-6671 (voice)
Saratoga/Albany/Amsterdam/BlueMountain/Cobleskill/Greenwich/
GlensFalls/LakePlacid/NorthCreek/Plattsburgh/...
	  First Internet service based in the 518 area code

---

From: Karl Auerbach <[email-masked]>
Date: Wed, 4 Feb 1998 10:24:28 -0800 (PST)

> This is the money that was intended to be paying for IANA and the RFC
> Editor's office, and which is proposed as a funding source to moderate
> this list. 

>    [TABLE NOT SHOWN] Court: Domain fees appear illegal

If the 30% sales tax on domain names registered through NSI is held
invalid, there is a non-trivial chance that the money will revert not to
the person who registered the name, but to NSI.

The reason for this is in the way that Amendment #4 to the NSF-NSI
cooperative agreement was (mis-)written.  It can fairly easily be read to
say that 100% of the registration fee money first flows into NSI and
*then* the 30% is taken out.  In other words, NSI could claim that it is
the taxpayer.

The situation gets far more interesting if the case goes further and says
that that part of the fee above cost (remember, the NSF-NSI cooperative
agreement is formally a "cost plus" contract) must be refunded.  In that
case the accounting for "cost" can get very interesting.  For example, are
the expenses for NSI's new buildings and such to be considered as "cost"?

By-the-way, I didn't notice that the so-called Green Paper covers
in-addr.arpa. 

		--karl--