THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
WILLIAM THOMAS, et al.,
          Plaintiffs, 
                                   CIVIL ACTION NO.
     v.                              1:97CV02412 (TFH)

NETWORK SOLUTIONS, INC.
AND NATIONAL SCIENCE FOUNDATION
          Defendants.

PLAINTIFFS' MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR TEMPORARY RESTRAINING ORDER AND PRELIMINARY INJUNCTION WITH RESPECT TO DEFENDANTS' ASSESSMENT OF INTERNET REGISTRATION AND RENEWAL FEES

Of Counsel:
Ralph C. Nash, Jr.
1140 23rd Street, N.W. No. 406
Washington,D.C. 20037-1439
William H. Bode (113308)
James M. Ludwig (427884)
Daniel E. Cohen (414985)
BODE & BECKMAN, L.L.P.
1150 Connecticut Avenue, N.W.
Ninth Floor
Washington, D.C. 20036
(202) 828-4100

Dated: February 10, 1998
TABLE OF CONTENTS
SectionPage
INTRODUCTION1
OVERVIEW2
BACKGROUND5
A.The NSF/NSI Cooperative Agreement5
B.The 1995 Amendment To The Cooperative Agreement6
C.Defendants' Charges Greatly Exceed The Cost Of Registering Domain Names 7
D.NSF's Relinquishment Of Public Property To NSI10
ARGUMENT12
I.THE REGISTRANTS ARE LIKELY TO PREVAIL ON THE MERITS12
A.The Above-Cost Charges To Register A Domain Name Are In Violation Of The Independent Offices Appropriations Act13
B.The Registration And Renewal Charges Violate U.S. Constitution Article I, 8 16
C.NSF's Relinquishment Of The Internet Registry To NSI Violates Article IV, 3 Of The U.S. Constitution 17
D.The Registration And Renewal Charges Violate The Requirements Of The Administrative Procedure Act 20
1.The Registration And Renewal Charges, Imposed Without Procedurally-Required Rulemaking, Are Arbitrary And Capricious20
2.The Defendants Violated The APA In Disregarding IOAA Requirements23
3.The Unconstitutional Taxes Violate The APA24
E.NSI's Post-Amendment "Extra" Charges Are Ultra Vires24
II.IMMEDIATE AND IRREPARABLE HARM25
III.ANY POTENTIAL HARM TO NSI IS FAR OUTWEIGHED BY THE ONGOING HARM TO REGISTRANTS27
IV.INJUNCTIVE RELIEF IS IN THE PUBLIC INTEREST27
V.RELIEF REQUESTED28
CONCLUSION29

TABLE OF AUTHORITIES
Cases:Page
Ashwander v. TVA, 297 U.S. 288 (1936), (quoting Story on the Constitution, 1325)18
Bolden v. Blue Cross and Blue Shield Ass'n, 669 F. Supp. 1096 (D.D.C. 1986), aff'd, Appeal of golden, 848 F.2d 201 (1988)22
Bowen v. Massachusetts, 487 U.S. 879 (1988)22,24
Bunge Corp. v. United States, 5 CI. Ct. 511 (CI. Ct. 1984) aff'd, 765 F.2d 162 (Fed. Cir. 1985)14,24
City of St. Louis v. Western Union Tel. Co., 148 U.S. 92 (1893)15
Connecticut Light and Power Co. v. NRC. 673 F.2d 525 (D.C. Cir. 1982), cert denied, 459 U.S. 835 (1982)21,23
Cox v. Brown, 498 F. Supp. 823 (D.D.C. 1980)13
Deckert v. Independence Shares Corp., 311 U.S. 282 (1940)26
Electronic Indus. Ass'n v. FCC, 554 F.2d 1109 (D.C. Cir. 1976)14
Engine Mfrs. Ass'n v. EPA, 20 F.3d 1177 (D.C. Cir. 1994)14,32
FEC v. Rose, 806 F.2d 1081, 1088 (D.C. Cir. 1986)22
Foltz v. U.S. News & World Report, 760 F.2d 1300 (D.C. Cir. 1985)26
Foundation on Economic Trends v. Heckler, 756 F.2d 143 (D.C. Cir. 1985) 12,27
Home Box Office Inc. v. FCC, 567 F.2d 9 (D.C. Cir. 1977), cert. denied sub nom. National Ass'n of Broadcasters v. Home Box Office Inc, 434 U.S. 829 (1977)21
Kooritzky v. Reich 17 F.3d 150922,24
Maryland Dep't of Human Resources v. Department of Health and Human Resources, 763 F.2d 1441 (D.C. Cir. 1985)23
Massachusetts v. United States, 435 U.S. 444 (1978)16
National Ass'n of Broadcasters v. FCC, 554 F.2d 1118 (D.C. Cir. 1976)15
National Cable Television Ass'n Inc. v. United States (NCTAI), 415 U.S. 336 (1974)13,16
Osborne v. United States, 145 F.2d 892 (9th Cir. 1944)18
Playboy Enters. Inc. v. Meese, 639 F. Supp. 581 (D.D.C. 1986)27
Portland Cement Ass'n v. Ruckelshaus, 486 F.2d 375 (D.C. Cir. 1973), cert. denied sub nom. Portland Cement Corp. v. Administrator EPA, 417 U.S. 921 (1974)21
Public Citizen Inc. v. FAA, 988 F.2d 186 (D.C. Cir. 1993)22
Seafarers Int'l Union of North Am. v. United States Coast Guard, 81 F.3d 179 (D.C. Cir. 1996)14
Thomas v. N.S.I. et al., Memorandum Opinion (D.D.C. Feb. 2, 1998)passim
United States v. City of St. Louis, 452 F. Supp. 1147 (E.D. Mo. 1978) 16
United States v. Gillett Co., No. CIV.A.90-0053,, 1990 WL 11115, at *2 (D.D.C. Jan. 16, 1990) (Hogan, J.)12
Washington Metro. Area Transit Comm'n v. Holiday Tours Inc., 559 F.2d 841 (D.D.C. 1977)12
Washington Post Co. v. United States Dep't of Health and Human Servs., 690 F.2d 252 (D.C. Cir. 1982) 9
Statutes:
5 U.S.C. 55331
U.S.C. 70631
U.S.C. 9701 (1983)15,17

INTRODUCTION

Plaintiffs in this action, the Domain Name Registrants on the Internet ("Registrants"), challenge the legality of various charges Defendants have imposed on them for the registration and renewal of their Domain Names on the Internet. This Court has already granted Registrants' motion for preliminary injunction with respect to the portion of Registration and Renewal charges (30%) earmarked for "preservation and enhancement" of the Internet. Specifically, in its Memorandum Opinion of February 2, 1998 (at 6-7), this Court acknowledged inter alia the Registrants' likelihood of prevailing on the merits of their claim that this "Preservation Assessment" -- which by definition is above and beyond Defendants' costs of providing services to the Registrants -- is unlawful. Thus the Court concluded that the Registrants have

made a significant showing that the Preservation Assessment is an illegal tax. Furthermore, they have shown that Congress has not yet ratified the assessment. Therefore, plaintiffs have made a substantial showing that defendants may have collected, and may currently be collecting, the assessment illegally.
Id. at 9.

Because the remaining 70% of the Registration and Renewal charges imposed by Defendants are similarly in excess of the amounts required to reimburse and fairly compensate defendants for the services provided, this motion likewise seeks relief with respect to the unjustifiable and unlawful windfall profits that NSI has amassed from these charges at the Registrants' expense. Accordingly, to protect against the Defendants' dissipation of such unlawfully-exacted registration and renewal fees, while at the same time minimizing any harm to

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Defendant Network Solutions, Inc. (NSI), the Registrants move this Court to require Defendants to place $45 million -- approximately one-half of all previously-collected Registration and Renewal assessments -- into a fund to be supervised by a Court-appointed Special Master, who will be empowered to make disbursements to NSI on an as-needed basis to alleviate any verifiable hardship that may arise.

OVERVIEW

The Registrants will show that while Defendants charge every Registrant $70 1/ for each initial registration, the total cost for each such registration is less than $10, and, that by virtue of automation and other technological advances, the costs are actually less than $1. Indeed, even the incomplete, redacted and labyrinthine cost data Defendants have provided to the Registrants thus far show, by conservative estimate (i.e., including costs of other, unrelated NSI businesses), that NSI's cost is no more than $13, yielding Defendant NSI approximately $89. 7 million in above-cost profits for "Registration" alone -- under a cooperative agreement contemplating receipts of only $5.2 million. Not content with these windfall profits, Defendants then exact "Renewal" assessments of $50 from each Registrant every year thereafter (even though NSI's costs for renewal services are negligible, if they even exist at all). As the Registrants will demonstrate below, the charges Defendants have exacted (and continue to exact) from the Registrants are ultra vires and unlawful, and must therefore be returned to the Registrants, with interest, as they are, inter alla,:

_____________________

1/ $70 constitutes the base charge portion of each initial $100 registration charge; the remaining $30 is allocated to the Preservation Assessment fund.

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(i)excessive regulatory charges imposed in violation of the Independent Offices Appropriation Act ("IOAA");

(ii) unconstitutional taxes in violation of Article I, Section 8 of the U.S.Constitution; and

(iii) arbitrary and capricious charges imposed in violation of the Administrative Procedure Act ("APA").

In addition, the Registrants will show that Defendant NSF, by relinquishing without compensation the publicly-owned Domain Name Registration system to NSI for its commercial exploitation, has independently violated Article IV, 3 of the U.S. Constitution. Finally, in addition to the foregoing violations, the Registrants will demonstrate that Defendant NSI has assessed charges against prospective and current Registrants that are ultra vires on their face, such as the charges for future Registration and Renewal services that are to take place after the expiration date of NSI's Cooperative Agreement with NSF, as well as surcharges (above the standing $100 Registration fee) for "Expedited" Registration ($10) and "reservation" of Domain Names ($49). All of these charges, including the above-cost Registration and Renewal fees, are demonstrably unlawful, thus establishing an irrefutable likelihood that the Registrants will prevail on the merits of their claims.

With every passing day, moreover, Defendants do irreparable harm to Domain Name Registrants by virtue of their ongoing assessment and dissipation of tens of millions of dollars in illegally-collected taxes and regulatory charges. Because there is no comparable hardship that Defendants will incur, and because sequestering merely one-half of the unlawfully- acquired funds to protect the Registrants is undeniably in the public interest, the Registrants request that the Court enter an appropriate Order granting the following relief:

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(i)that Defendants be immediately enjoined from dissipating the approximately $89.7 million collected from Internet Domain Name Registrants in excess of actual registration and renewal costs, pending an independent audit by the General Accounting Office ("GAO");

(ii) that pending an independent audit by the GAO, Defendants be ordered to immediately remit to a court-administered trust account, to be managed by a Special Master appointed by the Court herewith ("Special Master Account"), $45 million, said amount constituting approximately one-half of the total of all above cost profits unlawfully accrued by Defendant NSI;

(iii) that, pending a GAO audit, Defendants be ordered to remit to the Special Master Account all revenues obtained from charges for initial Domain Name Registration in excess of $15; and that Defendants remit to the Special Master Account all revenues of any kind obtained from charges for Renewal of Domain Name Registration;

(iv) that, pending a GAO audit, Defendants be ordered to remit to the Special Master Account all revenues from charges for any Registration service to be performed after the expiration of Defendant NSI's Cooperative Agreement with Defendant NSF;

(v)that, pending a GAO audit, defendants be ordered to remit to the Special Master Account all revenues obtained from charges for expedited Domain Name Registration or for reservation of Domain Names;

(vi) that, until such time as there is a Court-approved final accounting by the GAO, the Special Master may recommend, subject to the Court's approval, that funds from the Special Master Account be disbursed to NSI, on an as-needed basis, to alleviate any verifiable financial hardship demonstrated by NSI; and

(vii) that no later than the expiration of the Cooperative Agreement between Defendants, Defendant NSI be ordered to remit to the custody of the Special Master all components of the Domain Name Registry including, but riot limited to, the Domain Name Registry, its hardware, software, and all asserted intellectual property interests of any nature appurtenant thereto, including asserted proprietary interest, dominion or control over Internet addresses or the top level domain names ".com", ".org", ".edu", ".gov", and ".net" and all related intellectual property, facilities or technology of any kind whatsoever.

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BACKGROUND

The registration of Domain Names, like the registration and assignment of radio wavebands, is a classic governmental regulatory function over an essential public communication facility -- the Internet. The Inspector General for NSF acknowledges that: "Internet addresses are a unique public resource . . . [t]he people, through taxpayer revenue, have invested substantial funds in the development of the Internet and the system now used to register Internet addresses." See Inspector General Report, Ex. A at 1. NSF's Inspector General has further observed that "[n]o one disputes the importance of the Internet to the government and society":

The people, through their elected representatives, have historically exercised control over these internet addresses. In our view, public administration of this unique public resource should continue.

Ex. A at 8. Finally, the Inspector General summarizes that "[g]overnment authority over Intern addresses, which continues to be administered through federal awards, is a matter of historical fact " Ex. A at 9. As demonstrated below, since at least September 1995, NSI -- acting on behalf of the NSF in the administration of this unique public resource -- has engaged in a number of ultra vires and unlawful acts, including the assessment of unlawfully-excessive charges for Registration and Renewal of Domain Names.

A. The NSF/NSI Cooperative Agreement

In 1991, NSF assumed support for non-military Domain Name Registration services from the Department of Defense. Ex. A at 2. After public notice and competitive bidding, on January 1, 1993, NSF entered a "Cooperative Agreement" with NSI (Ex. B hereto) under which NSI was to administer Domain Name Registration services on behalf of the government for a five-year period ending March 31, 1998, with provision for a six-month ramp-down period

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through September 1998. In its "Statement of Work" provisions, the Cooperative Agreement requires NSI to "provide to non-military users and networks all necessary registration services (which were) previously provided by the Defense Information Systems Agency Network Information Center." Ex. B at 2. Specifically, these provisions required NSI to provide, inter alia, "Domain Name registration" and "Domain Name server registration." Ex. B at 3. The Cooperative Agreement was awarded on a cost-plus-fixed-fee basis, and was expected to cost approximately $1.0 million annually. Ex. B at 2. The estimated amount of NSI's costs for the entire contract term was approximately $5.2 million. Ex. B at 5. Under the Cooperative Agreement, the Registrants were not to be charged for the Registration or Renewal of Domain Names. Ex. B.

B. The 1995 Amendment To The Cooperative Agreement

In September 1995, NSF and NSI fundamentally altered the original Cooperative Agreement by entering into a so-called "Amendment" (Ex. C) which eliminated the cost-plus-fixed-fee basis for NSI's compensation. In its place -- and without any statutory authorization or public notice whatsoever -- NSF and NSI radically changed the agreement's compensation provisions, essentially allowing NSI to own and operate the Domain Name registry as a private "for profit" franchise.2/ Specifically, under the new arrangement, NSF authorized NSI to charge Registrants a $100 fee for each initial Domain Name Registration and two years of use to be allocated as follows:

_____________________

2/ While NSF competitively bid the initial Cooperative Agreement, it did not so bid the Amendment. Far worse, there is no indication that NSF conducted any market analysis whatsoever to determine the fair value of the service. Rather, it arbitrarily accepted NSI's proposed registration rates to be imposed on consumers.

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$70 to NSI "as consideration for the services provided;"

$30 to be administered by NSI in "preserving and enhancing" the Intellectual Infrastructure of the Internet.

Ex. C.3/ As noted above, on the strength of the Registrants' showing that the latter $30 surcharge for the "preservation and enhancement" of the Internet constitutes an unlawful tax, the Registrants have already been granted a preliminary injunction precluding the defendants from spending the revenues amassed in connection with that assessment. As this motion demonstrates, the base fee of $70 is also unlawful because it is arbitrary, capricious, and grossly in excess of NSI's actual costs in providing the services in question -- which costs are the measure of the maximum amount permitted by law for the assessment of such public-service regulatory charges.4/

C. Defendants' Charges Greatly Exceed
The Cost Of Registering Domain Names

It is an indisputable fact that the actual costs for registering and renewing Domain Names are but a small fraction of the charges Defendants have imposed on the Registrants. By way of background, several points regarding NSI's role in the registration process should not be overlooked. First, the computer hardware and software development expenses incurred in constructing the registration system were paid for by the American public and provided free-of-charge to NSI by NSF. Second, the task initially performed by NSI consisted of little more than

_______________________

3/ The Amendment also provided for a $50 renewal fee to be assessed against Registrants on an annual basis with an allocation of $35 to NSI as consideration for renewal services, and $15 to be credited to the Preservation Assessment fund.

4/ Upon information and belief, at the time NSI cajoled NSF into the Amendment, NSI knew that registrations were skyrocketing and that it would reap untold millions in profits pursuant to the new deal.

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hiring telephone operators to type Domain Name Registration information into the Internet computer registry. The registration process is now almost fully automated, as revealed by NSI in its Form S-1, Registration Statement (filed with the SEC July 3, 1997) (Ex. D hereto): "The Company's in-house registration software includes an automated registration capability which currently processes in excess of 90% of all new registration requests without human intervention." Ex. D at 5. Third, the cost of these ministerial services is but a minute fraction of the registration fees charged.

Thus it is not surprising that a leading Internet publication states that if competition for Domain Name Registration services happens this year, registration fees will fall to a one-time charge of $10.5/ See Laura Kujubu, InterNIC Under Fire, Competition, Complaints Heating Up, InfoWorld, January 5, 1998, at 1, 24 (Ex. E). Dr. Willie Black, the Managing Director of Nominet UK (Great Britain's Internet registrar service), has publicly stated that the costs are actually less than $7 per registration. In fact, because of the virtually-automated nature of the registration process, the Registrants will prove at trial that NSI's actual costs of registration are less than one dollar.

The heavily-redacted6/ cost data produced by Defendants to the Registrants thus far

_________________

5/ Another potential competitor estimates that it could provide service charging fees ranging between $12.50 and $18.75. See International Top Level Domain Shared Registry Now Active, 1/22/98 PRWIRE 15:53:00 (Ex. M).

6/ Although the Registrants have sought a variety of relevant and discoverable cost data from NSF through FOIA requests, various key documents are onspicuously absent from NSF's production. These include entire Monthly Progress Reports of NSI for the months just prior and subsequent to September 1995, which happened to be the month in which the $100 registration charge was first imposed. In addition, sections of NSI's September 1995 Monthly Progress Report were missing, as was NSI's entire Quarterly Status Report for the period

8

confirms that NSI has reaped over $89 million in unlawful profits from this boondoggle. Indeed, the analysis by Certified Public Accountant Sigmund Sklar of NSI's Prospectus (dated September 30, 1997) (Ex. F) and NSI's "10-Q" (dated September 30, 1997) (Ex. N) demonstrates that the current estimated cost of registration cannot possibly exceed, at a maximum, $13.7/ By the most conservative analysis -- that includes within the result NSI's cost for other businesses unrelated to Domain Name registration8/ -- NSI's costs per registration between 1996 and March 31, 1998 were as follows:

12 mos ended 12-31-96 $28
12 mos ended 12-31 -97 $29
3 mos ended 3-31 -98 $13

Ex. F. More strikingly, the cost data reveals that NSI has reaped nearly $90 million in profits from registrations as follows:

______________________

October 1, 1995 to December 31, 1995, and its entire Annual Report for 1995. More disturbingly, NSF has unjustifiably redacted plainly-discoverable data from its production under claim of "proprietary" interest. See, e.g., Washington Post Co. v. United States Dep't of Health and Human Servs., 690 F.2d 252 (D.C. Cir. 1982) (in FOIA cases "the presumption in favor of disclosure is at its zenith.").

7/ Sigmund Sklar, a CPA and management consultant with over thirty years of experience in project finance and financial and business management, performed an analysis of various NSI cost and revenue records produced to Plaintiffs pursuant to FOIA. See Ex. F.

8/ Domain Name Registration revenues accounted for 76.5% of NSI's net revenue for the three month period ending on March 31, 1997. Ex. D at 4. NSI also provides Intranet consulting services to clients such as, NationsBank; NSI's net revenue from Intranet services for the same period accounted for 23.5% of NSI's net revenue. Ex. D at 4. Significantly, the Registrants' expert, taking the most conservative approach possible in determining NSI's Registration costs, included all of NSI's net revenues in the analysis. See Ex. F.

9

12 mos ended 12-31-96 $25,083,533
12 mos ended 12-31-97 $44,085,002
3 mos ended 3-31-97 $20,610,096

$89,778,631 (Total Profit)

Ex. F. Thus, based on Defendants' self-serving (and redacted) data, the assessment of a, Registration fee of $70 and an annual Renewal fee of $35 upon each Registrant are charges vastly in excess of the costs of services provided.

D. NSF's Relinquishment Of Public Property to NSI

The Internet was paid for by the American public, at a cost of billions of taxpayer dollars. As the NSF Inspector General acknowledges, "Internet addresses are a unique public resource." Ex. A at 1. It is therefore dumbfounding that in authorizing NSI to perform the ministerial task of registering Domain Names, NSF relinquished to NSI -- without any compensation (or any constraint) -- the entire publicly-owned Internet registration system. Indeed, the Inspector General acknowledges that once the Cooperative Agreement expires, NSI could continue to profit from its de facto control of Internet addresses:

If, after the period of the cooperative agreement ends, NSI were not operating under NSF direction and were somehow able to continue to provide its current registration services and collect registration fees, nothing would currently prevent NSI from using its de facto control of Internet addresses to profit from granting access to the Internet.

Id. (emphasis added). In a startling confirmation of the Inspector General's premonition, NSI pronounced recently that "[NSI] own[s] the intellectual property rights to the .com domain and won't give it up without a fight." See Jan. 26, 1998, Todd Wallack, Control of Net Addresses May Change, Boston Herald, January 26, 1998, at 023, 1998 WL 7335725 (Ex. G).

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Indeed, an NSF spokesperson has recently stated: "Obviously the current Internet has grown beyond a research and education activity, and therefore beyond the scope of NSF* mission." See Rajiv Chandrasekaran, White House Favors Privatizing Key Tasks in Running Internet, Washington Post, January 30, 1998, at A01, 1998 WL 2464872 (Ex. H). In addition, the Department of Commerce has recently acknowledged that in view of the commercial nature of the Domain Name Registration system, NSF has exceeded the scope of its congressional "research" mandate by participating in the commercial aspects of the process as follows:

There is widespread dissatisfaction about the absence of competition in domain name registration.***Many commercial interests, staking their future on the successful growth of the Internet, are calling for a more formal and robust management structure***As the Internet becomes commercial, it becomes inappropriate for U.S. research agencies (NSF and DARPA) to participate in and fund these functions.***Management of number addresses is best done on a coordinated basis.***We propose the creation of a private, not-for-profit corporation . . . to manage the coordinated functions in a stable and open institutional framework.

See "A Proposal To Improve Technical Management of Internet Names and Addresses Discussion Draft 1/30/98" (Ex. I). The Department of Commerce is not alone in its criticism of Defendants' mismanagement and exploitation of the Domain Name Registration process. Indeed, the Internet community as a whole is up in arms in protest of NSI's monopolistic abuse of its government contract. The January 26, 1998, New York Times reports: "Much of the current turmoil comes from widespread indignation that the egalitarian Internet would be the source of such a profitable monopoly for Network Solutions." Amy Harmon, Internet Group Challenges U.S. Over Web Addresses, N.Y. Times, January 26, 1998, at D5 (Ex. J). In sum, governmental and private entities alike are united in their view that NSI's regime over the Internet is ultra vires, unlawful and wrong.

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ARGUMENT

This Court has stated that the standard for granting a temporary restraining order is the same for the issuance of a preliminary injunction. See United States v. Gillette Co. No. CIV.A.90-0053, 1990 WL 11115, at *2 (D.D.C. Jan. 16, 1990) (Hogan, J.) ("In this Circuit, the standard for granting a temporary restraining order has been held to be the same as for the issuance of a preliminary injunction: the plaintiffs must show it is likely to prevail on the merits, that it will suffer irreparable harm if the motion for the temporary restraining order is not granted, that other parties to the action will not suffer substantial harm if the temporary restraining order is issued, and that the public interest would be served by the granting of such relief.") The district court has broad discretion in balancing these factors -- each of which is satisfied here. See Foundation on Economic Trends v. Heckler, 756 F.2d 143, 157 (D.C. Cir. 1985).

I. THE REGISTRANTS ARE LIKELY TO PREVAIL ON THE MERITS

The United States Court of Appeals for the District of Columbia Circuit has provided the following guidelines in assessing a movant's likelihood of success on the merits: "The necessary 'level' or 'degree' of possibility of success will vary according to the court's assessment of the other factors***' . . . One moving for a preliminary injunction assumes the burden of demonstrating either a combination of probably success and the possibility of irreparable injury or that serious questions are raised and the balance of hardships tips sharply in his favor'." Washington Metro. Area Transit Comm'n v. Holiday Tours. Inc., 559 F.2d 841, 843 (D.D.C. 1977) (citations omitted). This Court has further emphasized that the moving party need not

12

show any certain mathematical probability of success on the merits in order to warrant the relief requested. Cox v. Brown, 498 F. Supp. 823, 827 (D.D.C. 1980).

A. The Above-Cost Charges To Register A Domain
Name Are In Violation Of The Independent
Offices Appropriations Act

Under the Independent Offices Appropriation Act ("IOAA"), agencies are authorized to charge assessments for services only in limited circumstances and only to a limited extent:

The head of each agency . . . may prescribe regulations establishing the charge for a service or thing of value provided by the agency***Each charge shall be (1) fair; and (2) based on (A) the costs to the government; (B) the value of the service or thing to the recipient; (C) public policy or interest served; and (D) other relevant facts.

31 U.S.C. 9701.

Here, NSF has purported to delegate authority -- by means of an Amendment to a Cooperative Agreement entered with NSI -- to "establish and collect charges" for the service of Internet Domain Name Registration. This service had for a period been provided by the government itself, and subsequently by NSF, at no charge to the Registrants. Without any notice or opportunity for public comment whatsoever, NSF and NSI simply decided, by fiat, to begin imposing Registration and Renewal charges.

In addition to being fatally defective on procedural grounds (discussed more fully at 20 25,infra), the Registration and Renewal charges in question clearly violate the IOAA's substantive requirements. In National Cable Television Ass'n. Inc. v. United States (NCTAI), 415 U.S. 336, 341 (1974), the Supreme Court made clear that "we read [IOAA] narrowly as authorizing not a 'tax' but a 'fee'." The Supreme Court then established the following boundaries for such fees:

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1. The fee may not exceed the agency's cost of providing the service;

2.The fee must be reasonably related to and may not exceed the value of the service to the recipient, whatever the agency's costs may be; and

3. When the specific agency activity in question produces an independent, public benefit the agency must reduce the portion of the agency's costs attributable to the public benefit.

NCTAI I, 415 U.S. at 343. As subsequent decisions establish, this Court need look no further than application of the first factor here, because in no event may a fee exceed the agency's cost of providing the service. See Engine Mfrs. Ass'n v. EPA, 20 F.3d 1177, 1180 (D.C. Cir. 1994) ("[a]n agency may not charge more than the reasonable cost it incurs to provide a service, or the value to the recipient, whichever is less" (emphasis added) ); Seafarers Int'1 Union of North Arn. v. United States Coast Guard. 81 F.3d 179, 185 (D.C. Cir. 1996) ("[i]n short, the measure of the fees is the cost to the government of providing the service, not the intrinsic value of the service to the recipient"); see also Bunge Corp. v. United States, 5 (CI. Ct. 511, 517 (CI. Ct. 1984) ("If fees charged under the IOAA exceed the cost of providing services, the excesses could well be considered a tax ")9/, aff'd, 765 F.2d 162 (Fed. Cir. 1985).

As a factual matter, it is beyond dispute that the actual costs for providing registration

________________________

9/ In Electronic Indus. Ass'n v. FCC, 554 F.2d 1109, 1117 (D.C. Cir. 1976), the Court further explained that in order to justify a fee, the agency must satisfy the following criteria (which were uniformly disregarded here):

[The agency] must calculate the cost basis for the fee assessed. This involves (a) an allocation of the specific and indirect expenses which form the cost basis for the fee to the smallest practical unit; (b) exclusion of any expenses incurred to serve an independent public interest; and (c) a public explanation of the specific expenses included in the cost basis for a particular fee, an explanation of the criteria used to include or exclude particular terms.

14

and renewal services are but a minute fraction of the charges exacted from the Registrants. See Ex. E at 24 (if competition opens up for Domain Name Registration, fees will fall to one-time charge of $ 10); cf. public acknowledgment of Dr. W. Black, Managing Director of Nominet UK (registration costs in fact are less than $7). Finally, NSI's own self-serving cost data demonstrates that its actual costs are no more than $13 per registration. See supra at 8-10. In fact, due to the virtually entirely-automated nature of the registration process, the Registrants will be able to show that the cost of registration is less than $1.

Accordingly, NSI's grossly-excessive $70 Registration Fee and $35 Renewal Fee are so far beyond the costs of this service -- by any measure -- as to easily demonstrate the Plaintiffs' likelihood of prevailing on the merits. Accordingly, as the nearly $90 million in Registration and Renewal charges that NSI has amassed in excess of its costs have been illegally collected, NSI should be ordered to place approximately one-half of the illegal charges-- $45 million-- in a fund to be monitored by a Court-appointed Special Master, pending an accounting of actual costs. This will ensure that the charges collected in excess of NSI's costs may be safely recouped and refunded, with interest, to the Registrants. See National Ass'n of Broadcasters v. FCC, 554 F.2d 1118, 1132 (D.C. Cir. 1976) (NCTAI), [I] can and will be applied . . . to require refund of fees collected . . . to the extent that they exceeded legally permissible amounts").10/

________________________

10/ 31 U.S.C. 9701 (1983). Under the facts of this case, not only is NSF's conduct in violation of, inter alla, the IOAA and the U.S. Constitution; NSI's profiteering from NSF's unauthorized violations is itself unlawful per se. Putting aside NSI's status as an agent or representative of the government holding the res of illegally-imposed regulatory charges, it is axiomatic that a government agency may not delegate authority which it does not possess in the first instance. See, e.g., City of St. Louis v. Western Union Tel. Co., 148 U.S. 92, 100-101 (1893) ("No one would suppose that a franchise from the federal government to a corporation, state or national, to construct interstate roads or lines of travel, transportation, or communication,

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B. The Registration And Renewal Charges
Violate U.S. Constitution Article I. 8

In its February 2, 1998 Memorandum Opinion, this Court observed that because the 30% Preservation Assessment "exceeds the cost of regulation," the Assessment very likely constitutes an unauthorized tax. Id. at 7. The Registrants submit that on the basis of this same fundamental analysis, the above-cost portion of the remaining seventy percent (70%) of the Registration and Renewal charges also constitutes an impermissible tax. As this Court aptly observed, such above-cost assessments precisely meet the classic definition of a tax:

[S]ome courts have looked to the service provided by the agency, in exchange for the regulatory assessment. These courts held that an assessment may be a tax if it is not fairly tied to both the value received by the payee and to the cost of the service to the agency. [citations omitted]. Because the payee (sic) did not receive a benefit commensurate to the value of the assessments, or because the agency charged in excess of its costs and expenses, these courts have held that the assessment was a tax.

Id. at 6 (emphasis added) (citing, inter alia, Massachusetts v. United States, 435 U.S. 444, 464 (1978)). It cannot be disputed that NSI's costs are but a small fraction of the $70 Registration and $35 Renewal fees it exacts from Registrants. Accordingly, there is every likelihood that the Registrants will demonstrate that the Registration and Renewal charges contain millions of dollars in unlawful windfall profits to NSI.

Further, "[i]t is undisputed that only Congress has the power to levy taxes." Feb. 2, 1998 Memorandum Opinion at 5 (citing U.S. Constitution, Article I, 8; (NCTAI), I, 415 U.S. 336, 340

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would authorize it to enter upon the private property of an individual, and appropriate it without compensation.") (emphasis added); United States v. City of St. Louis, 452 F. Supp. 1147, 1151 (E.D. Mo. 1978) ("The reason the federal government could not give a franchise 'to enter upon the private property of an individual, and appropriate it without compensation,' is that the federal government itself does not have that power.").

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(1974); Bell Atl. Tel. Cos. v. FCC, 24 F.3d 1441, 1445 (D.C. Cir. 1994)). Congress has neither expressly provided for, nor ratified, any such taxing of Registrants here. Thus the Defendants can only contend that, at most, the only Registration and Renewal charges even arguably authorized are those falling within the narrow confines prescribed by the IOAA. See 31- U.S.C. 9701 (2)(A) (1983) (charges may not "exceed[] the cost of regulation.") Accordingly, because it is uncontroverted, and incontrovertible, that the Registration and Renewal charges here grossly exceed the "cost of regulation" by any measure, they are unlawful, congressionally-unauthorized taxes in violation of Article I, 8 of the U.S. Constitution.11/

C. NSF's Relinquishment Of The Internet Registry To
NSI Violates Article IV, 3 Of The U.S. Constitution

The Internet is the property of the American public. It is thus incomprehensible that in authorizing NSI to perform the ministerial task of registering Domain Names, NSF relinquished to NSI -- without any compensation -- the entire publicly-owned Internet registration system. Article IV, 3, clause 2 of the U.S. Constitution plainly precludes such "disposing" of the property of the United States, however:

The Congress shall have Power to dispose of and make all needful Rules and Regulations respecting the Territory or other Property belonging to the United States.

Id. This Constitutional prohibition applies with equal force to real and personal property alike. Thus, the Supreme Court has ruled:

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11/ Throughout this litigation, NSI has studiously avoided disclosure of its actual costs, and has instead opaquely alluded to "the very substantial costs [its] incurred" in meeting registration demands. See NSI Opp. to Mot. Prelim. Inj. at 2-3 n.2.

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The grant was made in broad terms, and the power of regulation and disposition was not confined to territory, but extended to 'other property belonging to the United States,' so that the power may be applied, as Story says, 'to the due regulation of all other personal and real property rightfully belonging to the United States.' And so, he adds, 'it has been constantly understood and acted upon.'

Ashwander v. TVA, 297 U.S. 288, 330 (1936), (quoting Story on the Constitution, 1325, 1326.)12/

In direct contravention of these provisions, NSF has taken it upon itself to cede the entirety of the United States' Internet Registry property to NSI without any compensation whatsoever. Thus, even the Inspector General was constrained to acknowledge that, once the Cooperative Agreement expires, NSI could abscond with the Internet Domain Name Registration technology and continue to exploit it for its own corporate gain:

If, after the period of the cooperative agreement ends, NSI were not operating under NSF direction and were somehow able to continue to provide its current registration services and collect registration fees, nothing would currently prevent NSI from using its de facto control of Internet addresses to profit from granting access to the Internet.

Id. (emphasis added). Confirming the Inspector General's fears, NSI brazenly pronounced recently that "[NSI] own[s] the intellectual property rights to the .com domain and won't give it up without a fight." & Ex. G. Worse, NSI has now taken the position that "[NSI] own[s] the intellectual property rights to the .com domain."

NSF's "giveaway" to NSI of such an invaluable and unique public facility -- consisting of billions of dollars worth of cyberspace technology, developed over the course of many years by

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12/ See also Osborne v. United States, 145 F.2d 892, 896 (9th Cir. 1944) ("No grant of United States property may be made except by virtue of Congressional authorization.")

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the U.S. government, and paid for by the American taxpayer -- is flatly unconstitutional under the plain provisions of Article IV, 3. NSF's wholesale relinquishment of public Internet property to this private corporation is thus not only in derogation of the Constitutional prohibition against the government's disposal of public property without compensation, but also an outright violation of the public trust.

Compounding this violation is NSI's laying claim to such public property, and NSI's manifest intention to continue to exploit it to collect unconscionable windfall profits into perpetuity. Just as the Constitution will not tolerate NSF's gross misfeasance in abandoning this unique public resource to NSI, nor will it tolerate a government contractor's arrogance in staking claim to property which at all times has rightfully belonged to the American public.13/ Accordingly, NSI should be ordered to remit to the custody of the Special Master -- no later than the expiration date of the Cooperative Agreement -- all components of the Domain Name Registry including, but not limited to, the Domain Name Registry, its hardware, software, and all

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13/ It is no secret that NSI fully intends to exploit the technology it reaped from the Cooperative Agreement for future enterprise:

In an even more unsettling twist of fate, Network Solutions may have found a way to perpetuate its role in registrations far past even the end of September. The company charged for Internet names, but not for Internet addresses. This turns out to be much more than a semantical difference*** Network Solutions has formed a separate company called the American Registry for Internet Numbers (ARIN) to issue -- you guessed it -numeric Internet addresses . . . So it can relinquish the host name registry contract and concentrate on the numeric addresses instead. And it can charge a lot of money for the Internet addresses, which formerly were free.

An NSI subsidiary Appears As New IP Address Registry, Electronic Mail & Messaging Systems, January 12, 1998,1998 WL 8214533(Ex.K).

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intellectual property interests of any nature appurtenant thereto, including any asserted proprietary interest, dominion or control over Internet addresses or the top level domain names ".com", ".org", ".edu", ".gov", and ".net," as well as all related intellectual property, facilities or technology of any kind whatsoever.

D. The Registration And Renewal Charges Violate
The Requirements Of The Administrative Procedure Act

In addition to the substantive violations of the IOAA and the United States Constitution set forth above, Defendants' surreptitious conversion of the original Cooperative Agreement from a cost-plus government contract into a for-profit private corporate franchise is also in clear violation of the requirements of the Administrative Procedure Act. 5 U.S.C. 553 et seq. ("APA"). NSF's disregard of the APA's mandatory requirements provides additional, independent grounds for invalidating the "arrangement" between NSF and NSI, and for ordering the relief here requested by the Registrants.

1. The Registration and Renewal Charges, Imposed Without
Procedurally-Required Rulemaking, Are Arbitrary and Capricious

Although they have had several opportunities during the course of this litigation to explain how they derived the Registration and Renewal Fee schedule, Defendants have conceded by their silence that there is no public record demonstrating any rationale whatsoever for any portion of the Registration or Renewal charges. Defendants' failure to provide for the requisite "notice and comment," like its failure to conduct any rulemaking proceedings of any kind, is fatally violative of the well-established procedural requirements of the APA:

The APA sets out three procedural requirements: notice of the proposed rulemaking, an opportunity for interested persons to comment, and 'a concise general statement of [the] basis and purpose of the rules ultimately adopted.

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Home Box Office. Inc. v. FCC, 567 F.2d 9, 35 (D.C. Cir. 1977), cert. denied sub nom. National Ass'n of Broadcasters v. Home Box Office. Inc., 434 U.S. 829 (1977). "[T]hese procedural requirements are intended to assist judicial review as well as to provide fair treatment for persons affected by the rule." Id., (citing Portland Cement Ass'n v. Ruckelshaus, 486 F.2d 375, 393-94 (D.C. Cir. 1973), cert. denied sub nom. Portland Cement Corp. v. Administrator EPA, 417 U.S. 921 (1974)). In Home Box Office, the Court of Appeals for the D.C. Circuit emphasized that:

To this end there must be an exchange of views, information and criticism, between interested persons and the agency. [citations omitted]. Consequently, the notice required by the APA, or information subsequently supplied to the public, must disclose in detail the thinking that has animated the form of a proposed rule and the data upon which that rule is based.

567 F.2d at 35 (emphasis added). That same court eloquently restated these principles in Connecticut Light and Power Co. v. NRC, 673 F.2d 525, 530 (D.C. Cir. 1982), cert. denied, 459 U.S. 835 (1982):

The purpose of the comment period is to allow interested members of the public to communicate information, concerns, and criticisms to the agency during the rule-making process. If the notice of proposed rule-making fails to provide an accurate picture of the reasoning that has led the agency to the proposed rule, interested parties will not be able to comment meaningfully upon the agency's proposals. As a result, the agency may operate with a one-sided or mistaken picture of the issues at stake in a rule-making. In order to allow for useful criticism, it is especially important for the agency to identify and make available technical studies and data that it has employed in reaching the decisions to propose particular rules. To allow an agency to play hunt the peanut with technical information, hiding or disguising the information that it employs, is to condone a practice in which the agency treats what should be a genuine interchange as mere bureaucratic sport. An agency commits serious procedural error when it fails to reveal portions of the technical basis for a proposed rule in time to allow for meaningful commentary.

The D.C. Circuit has consistently held, moreover, that a rule established in disregard of the APA's notice and comment requirements is arbitrary and capricious as a matter of law. See

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FEC v. Rose, 806 F.2d 1081, 1088 (D.C. Cir. 1986) ("an agency action accompanied by an inadequate explanation constitutes arbitrary and capricious conduct.");14/ see also Public Citizen, Inc. v. FAA, 988 F.2d 186, 197 (D.C. Cir. 1993) ("The requirement that agency action not be arbitrary and capricious includes the requirement that the agency adequately explain the result, [citation omitted] and respond to 'relevant' and 'significant' public comments.").

In utter disregard of these requirements, NSF and NSI secretly devised the Registration Fee schedule without any public notice or interchange at all. The fees are thus arbitrary and capricious as a matter of law, and should accordingly be set aside by this Court. See, e.g., Kooritzky v. Reich, 17 F.3d 1509, 1514 (setting aside rule where interested persons were denied right to prior comment, because "[a] 'reviewing court shall,' the APA instructs, 'set aside agency action ' when the agency has acted arbitrarily or 'without observance of procedure required by law"') (emphasis added)).15/

It is equally clear that this Court is empowered to order that revenues unlawfully collected in violation of the APA be reimbursed to the Registrants. See e.g., Bowen v. Massachusetts, 487 U.S. 879, 910 (1988) (ruling that "specific relief" in the form of

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14/ Nor would any post hoc explanation cure the failure to provide adequate explanation in the first instance: "Of course, it is the general rule that an agency may not rely on post hoc reasoning, divulged for the first time in litigation, as the basis for its decision." Bolden v. Blue Cross and Blue Shield Ass'n, 669 F. Supp. 1096, 1100 (D.D.C. 1986), aff'd, Appeal of golden, 848 F.2d 201 (1988).

15/ As an alternative to requiring the immediate refund to the Registrants of all fees heretofore collected. the Registrants respectfully suggest that the Court should enjoin NSI's dissipation of all previously-collected registration revenues pending a hearing before this Court, with the participation of the General Accounting Office, to determine an appropriate refund amount. In no event, however, should this matter be remanded to NSF, since it is patently-biased and its ostensible jurisdiction in this matter faces imminent expiration. See Ex. I.

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reimbursement is available remedy under APA 702); Maryland Dep't of Human Resources v. Department of Health and Human Resources, 763 F.2d 1441, 1446 (D.C. Cir. 1985) ("[W]hile in many instances an award of money is an award of damages, '[o]ccasionally a money award is also a specific remedy' .... Courts frequently describe equitable actions for monetary relief under a contract in exactly those terms").

2. The Defendants Violated The APA In
Disregarding IOAA Requirements

In setting Registration and Renewal charges, NSF and NSI were not only required to adhere strictly to the substantive requirements of the IOAA mandating that such charges not be excessive. See, 13-16, supra. In addition, the Defendants were also required to adhere to the APA's procedural requirements governing such rulemaking. The D.C. Circuit has specifically held that the APA's procedural requirements are applicable in the context of fee-setting proceedings, particularly in the context of the IOAA. e.g., Engine Mfrs., 20 F.3d at 1181 ("The Administrative Procedure Act requires the agency to make available to the public, in a form that allows for meaningful comment, the data the agency used to develop the proposed rule***[W]e hold that the agency failed to provide a reasonable explanation of the cost basis for its fee proposal"); Connecticut Light and Power Co. v. NRC, 673 F.2d 525, 530-31 (D.C. Cir. 1982) (applying APA requirements to IOAA). As discussed in the preceding section, instead of adhering to the APA's requirements, NSF quietly agreed -- behind closed doors, and with no opportunity for public comment -- to amend its agreement with NSI to provide for grossly-excessive Registration and Renewal charges. NSF's disregard of the APA's notice-and-comment rulemaking procedures required to determine the proper charges for the services in question thus

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provides an additional ground for invalidating the charges in question, and for providing the relief requested. See Kooritzky, 17 F.3d at 1514 (setting aside rule where interested persons were denied right to prior comment); Bowen, 487 U.S. at 910 (1988) ("specific relief" in the form of reimbursement is available remedy under APA 702).

3. The Unconstitutional Taxes Violate The APA

By its plain terms, Article I, 8 of the U.S. Constitution grants to Congress, and only to Congress, the power to assess taxes. The APA, in turn, mandates that action which is "contrary to a constitutional right" be set aside. 31 U.S.C. 706. As a matter of law, any portion of the Registration or Renewal charges that exceed the cost of the service provided are, by definition, Congressionally-unauthorized taxes. See Bunge Corp. v. United States, 5 (CI. Ct. 511, 518 (CI. Ct. 1984) ("[i]f fees charged . . . exceed the cost of providing services, the excesses could well be considered a tax .... "), aff'd, 765 F.2d 162 (Fed. Cir. 1985). As a factual matter, moreover, there can be no dispute that the Registration and Renewal charges constitute windfall profits vastly in excess of NSI's costs. Accordingly, these charges are "contrary to a constitutional right" under 706 of the APA, which provides yet another ground for invalidating the excessive Registration and Renewal charges.

E. NSI's Post-Amendment "Extra" Charges Are Ultra Vires

Above and beyond the fatal defects inherent in the ($100) Registration and ($50) Renewal charges themselves, NSI has taken it upon itself to impose yet additional charges beyond those contemplated in the Cooperative Agreement or the procedurally-defective Amendment to it. For example, NSI continues even now to register Domain Names -- collecting fees for upwards of two years of service -- even though its agreement with NSF will expire in

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two months (on March 31, 1998). Further, NSI has decided on its own to charge prospective Registrants a fee of $49, over and above the $100 Registration fee, merely to reserve the future registration of a Domain Name (even where such registration would take place after NSI's involvement has ended). What is more, NSI has devised an additional surcharge of $10 to be imposed on Registrants seeking "expedited registration," even though the $100 Registration charge itself is almost entirely (unlawful) profit as it is. Thus, compounding the constitutional and statutory infirmities that invalidate Defendants' Registration and Renewal charges as a matter of law, these post-contractual and "extra" charges imposed by NSI are ultra vires on their face.

II. IMMEDIATE AND IRREPARABLE HARM

In addition to the likelihood that the Registrants will prevail on the merits of their claims as the foregoing discussion shows, they also easily satisfy the requirement of demonstrating that immediate and irreparable harm will result from allowing NSI to proceed without restraint. As each day passes, Defendants continue to collect and dissipate patently-unlawful registration surcharges, taxes and charges. To date, NSI has amassed nearly $90 million in profits from the assessment of illegal regulatory charges on Registrants. Moreover, there is no impediment to NSI's dissipation of such illegally-gained profits.

In fact, the evidence shows that NSI has already dissipated millions of dollars reaped from its unlawful Registration and Renewal charges. For example, NSI has recently spent in excess of $10 million on new hardware and software, and opened a new 32,000 square foot "registration service center." See Network Solutions Registers Record Number of Internet Names in 1997: California Leads U.S. in Registrations, 1/7/98 PRWIRE 11:46:00 (Ex. L hereto).

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Further, between 1996 and 1997 NSI spent an astounding $19 million on general and administrative expenses. The proceeds from illegal registration charges are also continually eroded by federal and state tax assessments. See NSI's Form 10-Q Securities end exchange Commission Filing (Ex.N) (stating that NSI "made its quarterly tax and intercompany activity payments to SAIC totaling $10.5 million by October 3, 1997 with the remaining $11.4 million to be paid by November 15, 1997"). Moreover, there is nothing to stop NSI from simply transferring the assets to its corporate parent SAIC. Indeed, NSI's 10-Q SEC Filing discloses that upon completion of its initial public offering on October 1, 1997, NSI paid SAIC a dividend of $10 million. 16/ Ex. N.

In addition, impending deregulation and increasing competition (not to mention the pending court-ordered reduction in NSI's charges) will likely have a very dramatic impact on NSI's cash-flow.17/ As a result, NSI's continued solvency generally, and its ability to return the $89.7 million in illegal profits to the Registrants specifically, are in serious question.18/ In view

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16/ NSI's cost data produced to date indicates that SAIC, NSI's privately- held corporate parent (with over 80% ownership of NSI), already obtains substantial revenues passed through from NSI via various intracorporate transactions.

17/ As noted above, over 75% of NSI's revenues are derived from registrations under the Cooperative Agreement.

18/ See e.g., Deckert v. Independence Shares Corp., 311 U.S. 282, 290 (1940) (preliminary injunction restraining transfer of funds by trustee was proper where there were allegations that defendant was insolvent). In Foltz v. U.S. News & World Report, 760 F.2d 1300, 1309 (D.C. Cir. 1985), the District of Columbia Circuit Court of Appeals upheld the authority of the district court in an ERISA action to enjoin the pay-out of all assets from a profit sharing plan, reasoning that "an equitable remedy designed to freeze the status quo . . . would be entirely in keeping with the principles that undergird equity jurisprudence." The Court aptly noted that "[p]laintiffs would . . . have a hollow victory indeed if the Plan remained extant, as a formal matter, but was drained of all or virtually all of its assets, especially if plaintiffs' damage

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of these facts, the strong likelihood of irreparable injury to past, current and future Registrants cannot seriously be questioned here.

III. ANY POTENTIAL HARM TO NSI IS FAR OUTWEIGHED
BY THE ONGOING HARM TO REGISTRANTS

The profits that NSI holds in its coffers are illegal. Thus, while NSI will certainly argue that the temporary disgorgement of those profits will cause it harm, it had no right to amass such profits in the first place. Moreover, even if the sequestering of these funds were to cause hardship to NSI, the mechanism proposed by the Registrants here would provide for relief to the extent justified. Specifically, the Registrants respectfully request that the Court appoint a Special Master to establish and oversee an account into which NSI's improperly-exacted monies would be deposited. Thereafter, if NSI were to claim hardship resulting from the sequestering of these funds, it would be able to apply to the Special Master for disbursements, which the Master would be authorized to provide upon a verifiable showing of hardship and need. With such a mechanism in place, the balance of hardships in this case would clearly tip in the Registrants' favor. See Foundation on Economic Trends v. Heckler, 756 F.2d 143, 157 (D.C. Cir. 1985) (recognizing district court's broad discretion, and upholding determination that balance of harms favored injunction).

IV. INJUNCTIVE RELIEF IS IN THE PUBLIC INTEREST

It is eminently in the public interest to protect the funds that Defendants' have amassed by unlawful, unconstitutional means. See, e g, Playboy Enters.. Inc. v. Meese, 639 F. Supp. 581 (D.D.C. 1986) ("[I]t is in the public interest to uphold a constitutionally guaranteed right"). As

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claimswere far in excess of any remaining assets." Id.

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with Registrants' already-granted motion regarding the Preservation Assessment, requiring NSI to deposit merely one-half of the funds unlawfully obtained from Registration and Renewal charges that are vastly in excess of NSI's costs -- specifically for the purpose of protecting the rights and interests of current and prospective Domain Name Registrants -- is similarly in the public interest here.

V. RELIEF REQUESTED

As demonstrated above, Defendants have exacted, and continue to exact, tens of millions of dollars in illegal profits from Registrants and prospective Registrants. In order to protect the unlawfully-exacted funds from being dissipated or made otherwise inaccessible, the Registrants respectfully request that the Court enter a Temporary Restraining Order granting the following relief: (i) that Defendants be immediately enjoined from dissipating any funds previously collected from the Registrants exceeding actual registration costs which -- by Defendants' cost records -- amounts to approximately $89.7 million; (ii) that Defendants be ordered to immediately pay into an account monitored by a Court-appointed Special Master one-half of its unlawfully obtained above cost revenues -- $45 million -- pending an audit of actual costs by the General Accounting Office ("GAO"); (iii) that Defendants be ordered to remit to this account all charges exceeding a fair one-time registration charge which, pending an independent audit, Plaintiffs submit should be no more than $15; (iv) that NSI be ordered to remit to this "Special Master account" any fees collected for services to be rendered after the expiration of the Cooperative Agreement, as well as any fees collected for "expedited registration" or reservation of Domain Names; and (v) that no later than the expiration date of its Cooperative Agreement, NSI be enjoined to return to the United States all components of the Domain Name registration

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system, the Domain Name database, and all registered addresses, including hardware, software and related technology, as well as all interests relating to the top level domains known as ".com", ".org," ".gov," ".net" and ".edu").

CONCLUSION

For the above reasons, the Registrants request that this Court issue a temporary restraining order and preliminary injunction to enjoin NSF and/or NSI from dissipating any of the monies previously collected in excess of actual cost, and that the sums requested be immediately placed into a trust account overseen by a Court-appointed Special Master. A proposed Order is annexed.

Respectfully submitted,

William H. Bode (113308)
James M. Ludwig (427884)
Daniel E. Cohen (414985)
BODE & BECKMAN, L.L.P.
1150 Connecticut Avenue, N.W.
Ninth Floor
Washington, D.C. 20036
(202) 828-4100

Dated: February 10, 1998

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CERTIFICATE OF SERVICE

I hereby certify that on this day I have served upon the party listed below, by telecopier without exhibits, and Federal Express the foregoing Plaintiff's Memorandum of Law in Support of Motion for Temporary Restraining Order and Preliminary Injunction with Respect to Defendants' Assessment of Intemet Registration and Renewal Fees, Motion for Temporary Restraining and Preliminary Injunction and Motion for an Expedited Hearing on Motion for Temporary Restraining Order and Preliminary Injunction.

Ms. Suzanne C. Nyland, Assistant U.S. Attorney
Department of Justice
United States Attorney's Office
District of Columbia
Judiciary Center
555 Fourth Street, N.W.
Washington, DC 20001
Counsel for Defendant NSF

Lloyd N. Cutler
Gary D. Wilson
Wilmer, Cutler & Pickering
2445 M. Street, N.W.
Washington, D.C. 20037
Counsel for Defendant NSI, Inc.

February 10, 1998

/s/Judy Caruthers
Judy Caruters