Antitrust Law Daily Wrap Up, ANTITRUST—E.D. Va.: Website states antitrust claims against GoDaddy, (Oct 15, 2024)

By Kenneth H. Ryesky, M.B.A., J.D.

Domain name system configuration program developer alleged that domain registrar who dominated the American market used "scare tactics" to drive customers away from using developer's program.

The federal district court in Alexandria, Virginia has denied the motions of GoDaddy.com to dismiss Sherman Act and tortious interference claims brought by an automated domain name system (DNS) configuration program developer. The developer alleged that GoDaddy violated the Sherman Act and committed tortious interference by excluding the program developer from the domains GoDaddy registered and managed. The court found that the Sherman Act and tortious interference claims were plausibly pleaded, and denied their dismissal (Entri, LLC v. GoDaddy.com, LLC, No. 1:24-cv-00569-AJT-WEF (E.D. Va. Oct. 10, 2024)).

Background. Individuals, businesses, or other entities that choose to have a website presence on the Internet begin by selecting and registering a unique website address, formally known as a uniform resource locator (URL). Registration is done via a domain registrar that has been accredited by the Internet Corporation for Assigned Names and Numbers (ICANN). The domain registrar maintains the website's registration and operable interactions on the Internet in exchange for a recurring fee, effectively a lease transaction for the URL name.

During the "lease" period, the registrant has the right to control the content and appearance of the website. Enhancements to the website content, which can include, among other things, payment systems, questionnaires, and/or e-mail utilities, require technical adjustments to the domain name system (DNS) records of the DNS provider in order to maintain operativity and connectivity with other Internet domains. URL registrants that do not possess the technical expertise to do the necessary coding adjustments often use various Software as a Service (SaaS) utilities.

GoDaddy.com, LLC (GoDaddy), the world's largest domain registrar, commands 40 percent of the domain registrations in the United States. GoDaddy created a standard protocol called Domain Connect, through which SaaS providers can update DNS records to be compatible with the enhancements to a website made by the SaaS. But in order for the Domain Connect protocol to operate, (1) the DNS provider must adopt it; and (2) the SaaS application provider must create an interface within the software to facilitate updating the DNS provider's records. Only four DNS providers have adopted Domain Connect.

In 2021, Entri, LLC (Entri) made available its software program called Entri Connect, which configures DNS records more efficiently and expeditiously than Domain Connect and which the SaaS users can use with more than forty DNS providers. In 2022, Entri and GoDaddy agreed that for a relevant SaaS, Entri would provide GoDaddy with Domain Connect-compatible settings to facilitate Entri Connect protocol in the SaaS.

In August 2023, GoDaddy ceased to load Entri's settings, citing an increased load on its resources, and also discontinued the availability of Domain Connect to SaaS providers on a no-charge open standard license basis.

Discussions between and Entri regarding Entri's payment of a licensing fee to use Domain Connect broke down, and in December 2023, GoDaddy revised its usage terms to prevent a GoDaddy-registered domain from using Entri Connect. GoDaddy allegedly made statements to one or more SaaS provider implying that Entri Connect was illegal.

In March 2024, GoDaddy sent a letter to Entri demanding that it cease and desist from using GoDaddy's Domain Connect Application Programming Interface (API), and asserting that Entri's actions constituted violations of the Lanham Act, the Computer Fraud and Abuse Act, and GoDaddy’s common law rights. Entri disputed GoDaddy's assertions, and brought an action against GoDaddy, in which it alleged (1) Sherman Act violations; (2) tortious interference with contract; and (3) tortious interference with business expectancies.

GoDaddy moved to dismiss Entri's complaint for failure to state a claim upon which relief can be granted.

Sherman Act violations. The court denied GoDaddy's motions to dismiss Entri's Sherman Act violation count. Entri had alleged cognizable antitrust injury from GoDaddy's barring from its registered domains not only Entri's aggregator service Entri Connect, but all aggregator services other than GoDaddy's Domain Connect; the led to SaaS providers refusing to begin using or discontinuing their use of the Entri Connect aggregator service protocol.

GoDaddy did not dispute the complaint's allegation that GoDaddy had tied its third-party aggregator Domain Connect to its domain registration services. The court found, however, that SaaS providers who used those GoDaddy's domain registration were required to not use Entri Connect (nor any other non-GoDaddy aggregator). Moreover, GoDaddy's 40 percent share of the American domain registration market constituted sufficient market power to coerce SaaS providers to use Domain Connect when they otherwise would prefer Entri's service. Entri pleaded that GoDaddy's actions were for the purpose of excluding Entri's aggregator service from the market. This served to plausibly plead a per se illegal negative tying agreement.

Additionally, although the SaaS providers (who were not named as defendants in the complaint) had effectively been coerced by GoDaddy into agreeing to exclude Entri Connect, the agreements described in Entri's pleading were unreasonable and constituted an illegal restraint of trade in violation of the Sherman Act.

Tortious interference. The court also denied GoDaddy's motions to dismiss Entri's tortious interference claims. Entri's antitrust pleadings alleged (1) the existence of contracts between Entri and SaaS providers; (2) GoDaddy knew of those contracts; (3) GoDaddy intentionally caused the SaaS providers to breach its contracts with Entri; and (4) Entri incurred customer and revenue loss from those breaches. These elements of the Sherman Act allegation also served to plausibly plead tortious interference with a contract that was not terminable at will. Even if those contracts had been terminable at will by the SaaS providers, Entri's allegation that GoDaddy made statements to SaaS providers suggesting that Entri Connect supplied the requisite improper method allegation to sustain a tortious interference with a contract claim.

For similar reasons, Entri's allegations that GoDaddy's tactics caused terminated contracts and required Entri to make monetary concessions to existing and/or prospective customers who were SaaS providers plausibly pleaded the tortious interference with business expectancies claim.

The Case is No. 1:24-cv-00569-AJT-WEF.

Judge: Trenga, A.

Attorneys: Nicholas James Giles (McGuireWoods LLP) for Entri LLC. Andrew Kiley Walsh (Hueston Hennigan LLP) for GoDaddy.com LLC.

Companies: GoDaddy.com LLC

MainStory: TopStory Antitrust VirginiaNews GCNNews