FTC Staff Comment Before the National Telecommunications and Information Administration Concerning its Proposal to Privatize Internet Domain Name System (DNS)

UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
BEFORE THE
NATIONAL TELECOMMUNICATIONS
AND INFORMATION ADMINISTRATION
U.S. DEPARTMENT OF COMMERCE
WASHINGTON, D.C.
In the Matter of
Improvement of Technical Management of Internet Names and Addresses
Docket No. 980212036-8036-01
Comment of the Staffs of the Bureaus of Economics and Competition
of the Federal Trade Commission(*)
March 23, 1998
I. Introduction
The Staffs of the Bureaus of Economics and Competition of the Federal Trade Commission (“FTC Staff”) welcome
this opportunity to respond to the National Telecommunications and Information Administration’s (“NTIA”) request for
comments (“RFC”) on its proposal to privatize the Internet Domain Name System (“DNS”).(1) Internet domain names
are the familiar and descriptive names for Internet sites (e.g., “www.ftc.gov”). They link to the unique Internet Protocol
(“IP”) numbers (e.g., 98.37.241.30) that serve as routing addresses on the Internet. The Domain Name System
translates Internet names into the IP numbers required for transmission of information across the network. Currently,
the registration and propagation of “top-level domain” (“TLD”) names is carried out by a single firm that is under a
soon-to-expire contract with the National Science Foundation.
The NTIA now proposes that the administration of TLDs, and the registration of domain names, be provided
competitively by private, for-profit entities. The NTIA also proposes that certain other technical functions (e.g.,
management of number addresses; coordination of the root server system; dissemination of protocol parameters for
Internet addressing) be carried out cooperatively (via a new not-for-profit corporation) by parties having vested
interests in the efficient operation of the system.
As explained more fully in this comment, purchasers of domain name registration services might be subject to
supracompetitive prices in the future if they become “locked-in” to a particular vendor of those services. The likelihood
of a significant customer investment that results in “lock-in” is a detailed factual question on which this comment
cannot reach a definitive conclusion. Economic analysis suggests, however, that purchasers may be able to take
steps to reduce their vulnerability to higher prices from “lock-in” effects. In addition, higher prices arising from “lock-in”
also could occur under alternatives to the NTIA proposal and under the current registration system. Finally, the
benefits to consumers of introducing competition to the registration of domain names are likely to make the NTIA
proposal, on balance, preferable to the current system.
II. Expertise of the Staff of the Federal Trade Commission

The FTC is an independent agency responsible for preventing unfair methods of competition and unfair or deceptive
acts or practices.(2) In response to requests by federal, state, and local government bodies, the staff of the FTC often
analyzes regulatory or legislative proposals that may affect competition or the efficiency of the economy. In the
course of this work, as well as in antitrust and consumer protection research, nonpublic investigations, hearings, and
litigation, the staff applies established principles and recent developments in law and economics to the analysis of
competition and consumer protection matters.
The FTC has actively applied its competition and consumer protection enforcement principles to Internet commerce.
The FTC began to examine the potential for consumer protection problems on the Internet even before on-line
consumer transactions became common. In the fall of 1995, for example, the FTC held public hearings to explore
business and consumer issues arising from technological innovation and increasing globalization.(3) Thereafter, a
workshop in 1996 focused on issues relating to the on-line collection of information from consumers.(4)
As part of its ongoing review of issues relating to on-line commerce, the Commission has directed education efforts
and brought several law enforcement actions to combat frauds that have migrated to (or taken advantage of) the on-
line medium. For example, in 1996, the staff of the FTC coordinated the “Internet Pyramid Surf Day,” a law
enforcement surveillance effort that included federal, state and local law enforcement officials. The participants surfed
the Internet to locate those sites posting possible pyramid scams. In 1997, the staff of the FTC conducted additional
“surf days” seeking to identify, among other things, possible on-line credit repair and business opportunity frauds. In
addition, firms that have used the Internet and related hi-tech products to peddle fraudulent business opportunity and
pyramid scams have been charged by the FTC with violating federal laws.(5)
III. Introducing Competition into Registration and Administration of Domain
Names
A. Background
The actual address of a computer on the Internet is a string of numbers -- the Internet Protocol (“IP”) address.(6)
Every Internet site is assigned a unique IP number.(7) Because these numbers can be difficult for users to remember,
most Internet sites also have a “domain name.” Domain names are an alphabetical, hierarchical, and more user-
friendly system of Internet addresses. The network depends on the numerical address, however, so to use domain
names, the system relies upon machines known as “name servers,” which translate (or “resolve”) domain names into
their corresponding IP addresses.
The Internet domain name space is divided into top-level domains (“TLDs”), with each TLD then divided into second-
level domains (“SLDs”), and so on.(8) A set of generic top-level domains (“gTLDs”) denote the intended function of
that portion of the domain space. For example, “com”was established for commercial users, “org” for not-for-profit
organizations, and “net” for network service providers.(9) The registration and propagation of these gTLDs are
performed by Network Solutions, Inc. (“NSI”) under a five-year cooperative agreement with the National Science
Foundation that expires in March 1998. The master list of domain names and IP numbers is kept on a “root server”
operated by NSI, which is updated daily.(10)
According to the NTIA RFC, there is dissatisfaction with the absence of competition in the provision of domain name
registration, and with the limited number of TLDs now available under the existing system.(11) NTIA proposes a new
system that would create a competitive market for “registries” and for “registrars.” Under the proposal, up to five new
privately-owned, for-profit entities would be allowed to become Internet registries.(12) Initially, each of these registries
would be allowed to offer one TLD (e.g., “store”, “vend”, “biz”, etc.).
In addition, NTIA’s proposal would allow unlimited entry into the market for “registrar” services. A “registrar,” as
contrasted with a “registry,” essentially would be an intermediary between a registry and a firm that wishes to create
an Internet site. For example, a firm (e.g., a retailer wishing to create a web site to sell merchandise on-line) might
employ the services of a registrar, to (among other things) help the retailer choose the registry best suited to its

demands and actually register the client’s domain name and IP number with the chosen registry. Presumably a client
could, if it wished, do some or all of these things for itself, as now appears to be the case.
B. Competitive Issues
The principal competitive issue in this proceeding centers on the registry issue. According to the RFC, some parties
have expressed reservations about the desirability of a competitive registry system. These parties argue that lack of
portability among registries (that is, the fact that users cannot change registries without adjusting at least part of their
domain name string) could create lock-in problems and harm consumers.(13) Some have recommended that if
multiple registries are to exist, they should be undertaken on a not-for-profit basis.
The potential problems associated with “lock-ins” and “switching costs” have been analyzed extensively in the
economics and antitrust literature.(14) The phenomenon arises when buyers must make relationship-specific
investments in order to do business with particular suppliers. Even if competition between suppliers is perfect ex ante
(i.e., before any such investments are made), customers may find themselves locked in to those suppliers ex post,
possibly rendering them vulnerable to opportunistic future price increases.
It would appear plausible that the absence of domain name portability across registries could impose a switching cost
on users who change registries. For example, if a firm must invest substantial resources to familiarize consumers with
its web-site name (e.g., “brandname.biz”), the cost of switching to a new site (e.g., “brandname.store”) would consist
of the incremental investment that it would have to make to inform consumers of the new name, plus any lost profits
from forgone sales (because some consumers never learn the new site). It is theoretically possible, therefore, that a
supplier could raise the future prices to locked-in customers. Nonetheless, it would be premature to conclude that this
switching cost provides a sufficient basis for precluding the proposed move to a competitive domain name registration
system.
The economic analysis of markets with switching costs has identified a number of factors that, in appropriate
circumstances, can diminish the ability and the incentive of a supplier to act opportunistically with respect to its
locked-in customers.(15) As we discuss below, important to this analysis are: (1) the extent to which prospective
customers are aware of the possibility of supplier opportunism; (2) the extent to which customers have effective
means (e.g., enforceable long-term contracts) to protect themselves against opportunism; (3) the intensity of
competition among suppliers; and (4) the importance of reputation and repeat business to suppliers’ current and
future profits.
If prospective buyers are aware that choosing a particular vendor commits them to that vendor in future periods, thus
exposing them to ex post opportunism,(16) then they have incentives to seek contractual protection against such
behavior -- for example, in the form of a long term contract that restrains the vendor’s pricing discretion in future
periods -- before committing to a particular vendor. Buyers’ ability to obtain such protection will be greater, other
things held constant, the more intense the competition among vendors, for one important dimension of competition
among these vendors likely would be their ability to credibly assure buyers that they will not be victimized by future
price increases.(17) Other things equal, vendors that can provide such credible assurances to buyers will profit at the
expense of those that cannot.
Even without the ability to obtain explicit and complete contractual protections against supplier opportunism, there
nonetheless may be other factors that afford buyers some degree of protection against supplier opportunism.(18) If
prospective buyers are concerned about the future prices as well as current prices, and have reasonably good
information about vendors’ pricing policies towards their existing locked-in customers, then vendors will have a
reduced incentive to engage in opportunism, for it will diminish their ability to attract new customers.(19) This
incentive will be amplified, the greater the growth rate of the relevant market, for then the costs of opportunism to
suppliers (forgone profits from lost future sales) will weigh more heavily against the corresponding benefits (profits
from opportunism against existing locked-in customers).(20) By contrast, if the market is in decline, or the vendor is
considering exit for some other reason, then these forgone future profits may be sufficiently small that the vendor will

find it profitable to engage in opportunism. Given the prospects for growth in Internet commerce, this set of
circumstances generally would appear unlikely.
Overall, we would conclude that while the possibility of supplier opportunism exists, the potential benefits to
customers from enhanced competition -- such as possible price reductions and quality improvements -- argue in favor
of the NTIA proposal. This is especially true given that the alternatives that have been proposed likely would not
remedy any such problems. One possible alternative is simply maintaining the status quo (i.e., a monopoly registry).
Clearly, this would not address any competitive issues associated with lock-in. If lock-in is perceived as a competitive
problem in a market with competitive registries, it follows a fortiori that it would be at least as great a problem absent
such competition.
A second alternative is to allow competition among registries, but to require that registry services be provided only by
not-for-profit entities. The problem here is that neither economic theory nor available empirical evidence establishes a
presumption that not-for-profit entities would forbear exploiting locked-in customers, assuming that it would be
profitable to do so. Theoretical analyses have yielded ambiguous predictions as to whether not-for-profit firms are
less likely than their for-profit counterparts to exploit market power. Similarly, empirical tests of this proposition have
yielded ambiguous outcomes; some studies claim to find that not-for-profit entities leave market power
unexploited,(21) while numerous others find the contrary.(22) At present, there is insufficient evidence to conclude
that organizing registries on a not- for-profit basis would solve any problems arising from customer lock-in.
C. Law Enforcement Considerations
Domain name registration information also plays an important role in the enforcement of consumer protection laws,
because it often enables the FTC and other law enforcement agencies to identify the persons or entities responsible
for fraudulent or deceptive commercial practices on a particular web site. Increasingly, however, domain name
registration information for web sites containing fraudulent commercial activity is unreliable. To the extent that
fraudulent operators of web sites are permitted to easily register under fake names or sham corporations or entities, it
becomes more difficult for the FTC and other law enforcement agencies to protect consumers who wish to do their
shopping on-line. Thus, from a law enforcement perspective, it is important that whatever domain name registration
system is in place appropriately safeguard the accuracy of this information.
IV. Activities Requiring Coordinated Private Behavior
Although the NTIA proposes to allow certain activities, such as domain name registration, to be carried out in a
competitive market setting, the NTIA also maintains that certain other technical functions (e.g., management of
number addresses; coordination of the root server system; dissemination of protocol parameters for Internet
addressing) will continue to require coordinated behavior among various parties having vested interests in the
efficient operation of the system (“stakeholders”). To carry out these activities, the RFC proposes the creation of a
new not-for-profit corporation whose board of directors would be made up of representatives of IP number registries,
domain name registries, domain name registrars, the technical community, and Internet users (commercial, not-for-
profit, and individuals). As the RFC notes, 63 Fed. Reg. at 8828, this corporation will act much like a private standard-
setting body.
The FTC has a long-standing interest in industry self-regulation of the type proposed in the RFC. As the RFC notes,
cooperation among Internet stakeholders may be essential for maintaining a stable system of Internet addresses that
will continue to provide connectivity for all users. Economic analysis suggests that private parties will be likely to
voluntarily set socially efficient technological standards when (1) there are aggregate net benefits from
standardization; (2) per capita private benefits from promoting standardization exceed per capita private costs; and
(3) no party has vested interests in any particular standard.(23) Private standard setting often will be more efficient
than government standard setting because industry participants possess better information than government
regulators regarding technical protocols, system administration, and future growth of relevant markets. Moreover,

industry participants are likely to move more quickly and flexibly than would be possible for government
regulators.(24)
Many of the benefits of industry self-regulation can be lost if competitors use otherwise legitimate industry forums to
undermine competition. When this occurs, it is usually because some party has a vested interest in a particular
standard. The FTC generally is concerned when competitors use self-regulation mechanisms to inappropriately limit
choices available to consumers or to forestall welfare-enhancing innovation.(25) In the context of the RFC, several
types of conduct could raise antitrust concerns. These include discriminatory allocation of number blocks;
exclusionary conduct against companies desiring to provide registry or registrar services; and adoption of technical
protocols that anticompetitively disadvantage competitors of board members.
To alleviate these possibilities, the NTIA has suggested a number of safeguards designed to ensure that no single
competitor or group of competitors will be able to use the proposed new corporation to impair competition. For
example, to protect against “capture by a narrow group of stakeholders,” the RFC proposes that the new
corporation’s “decision-making processes should be sound and transparent; the bases for its decisions should be
recorded and made publicly available.” The corporation’s board is to contain representatives of various groups of
Internet stakeholders, including regional number registries, domain name registries and registrars, the Internet
technical community, and commercial and non-commercial Internet users.
Forming the proposed new corporation consistently with these guidelines should provide some protection from
anticompetitive conduct. Self-regulatory decisions made pursuant to a clearly-established decision-making procedure,
based on objective criteria, may be less likely to raise antitrust concerns than those that are not. As we understand
the proposed structure, the decision-making process would provide opportunities for interested parties not directly
represented on the new corporation’s board of directors to express their views on particular questions and to notify
the corporation of issues that may warrant consideration. The informational benefits of broad-based participation in
the process, coupled with the diverse composition of the corporation’s board of directors, would increase the
likelihood that decisions will be made in an appropriate manner. If these safeguards fail, the arrangements still would
be subject to antitrust review by the Federal Trade Commission and the Department of Justice.
The RFC also suggests that super-majority or consensus (i.e., unanimity) voting could provide additional protection
against co-optation of the new corporation by narrow coalitions of self-interested board members. The competitive
implications of this proposal, however, are ambiguous. If unanimous voting is required, a self- interested board
member could block the corporation from taking appropriate action. There may be circumstances where giving
individual board members an effective veto would be proper, but in other circumstances a veto might be used
anticompetitively.
V. Conclusion
The NTIA has proposed that the administration of TLDs and the registration of domain names be provided
competitively by private, for-profit entities, and that certain other technical functions be carried out cooperatively by a
diverse collection of interested parties via a new, not-for-profit corporation. Both proposals would appear to offer
benefits to current and future Internet users. Although one cannot rule out, as a matter of theory, the possibility of an
exercise of market power under these proposals, on balance the likely benefits to customers of enhanced competition
support adoption of the proposed changes.
Endnotes
(*) This comment represents the views of the staffs of the Bureaus of Economics and Competition of the Federal
Trade Commission. They are not necessarily the views of the Federal Trade Commission or any individual
Commissioner. Inquiries regarding this comment should be directed to Michael Vita (202-326-3493) or Frederick
Horne (202-326-2308).

(1)See Department of Commerce, National Telecommunications and Information Administration, Proposed Rule and
Request for Public Comment In the Matter of Improvement of Technical Management of Internet Names and
Addresses, Docket No. 980212036-8036-01, February 20, 1998.
(2) 15 U.S.C. § 41 et seq.
(3) FTC Staff Report, Anticipating the 21st Century: Consumer Protection Policy in the New High-Tech, Global
Marketplace, May 1996.
(4) FTC Staff Report, Public Workshop on Consumer Privacy on the Global Information Infrastructure, December
1996.
(5) See FTC v. FutureNet et al. , No. 98-1113 GHK (AIJx) (C.D. Cal. filed Feb. 17, 1998) (illegal pyramid scheme
involving Internet access devices); FTC v. TouchNet, Inc., No. 98-0176 R (W.D. Wash., filed Feb. 11, 1998)
(fraudulent claims that investors could earn $15,000 a month by becoming “Internet Consultants”); FTC v. Hart
Marketing Enterprises, Ltd., Inc., No. 98-222CIV-T-23E (M.D. Fla., filed Feb. 2, 1998) (fraudulent claims that
consumers who invested in the computer kiosks selling Internet access could expect earnings between $500 and
$700 per kiosk per week).
(6) IP numbers are 32 bit addresses that consist of eight octets, and they are expressed as four numbers between 0
and 255, separated by periods (e.g.,198.41.0.52).
(7) The Internet Assigned Numbers Authority (“IANA”) at the University of Southern California coordinates this system
by allocating blocks of numerical addresses to regional IP registries. These are the American Registry for Internet
Numbers (“ARIN”) in North America, Reseaux IP Europeens (“RIPE”) in Europe, and the Asian- Pacific Network
Information Center (“APNIC”) in the Asia/Pacific region. Larger Internet service providers apply to the regional IP
registries for blocks of IP addresses. The recipients of those address blocks then reassign addresses to smaller
Internet service providers and to end users.
(8) In the Domain Name System, the top-level domain is that portion of the domain name that appears furthest to the
right (e.g., the “gov” in “ftc.gov”). The second-level domain is that portion of the domain name that appears
immediately to the left of the top-level domain (e.g.,the “ftc” in “ftc.gov”). Second-level domain names are often
descriptive and have come to be used increasingly to represent businesses and other commercial concerns on the
Internet. The third-level domain is that portion of the domain name that appears two segments to the left of the top-
level domain (e.g., the “reston” in “reston.va.us”).
(9) Currently, there are five world-wide generic domains (“com”, “org”, “net”, “edu”, and “int”); two U.S.-only generic
domains (“mil” and “gov”); and numerous country code domains (e.g., “us” for the United States, “au” for Australia,
etc.).
(10) A root server is a machine with the software and data needed to locate name servers that contain authoritative
data for the top level domains (e.g., root servers know which name servers contain authoritative data for com, net, fr,
uk, etc.). Currently, technical specifications limit the number of root servers to 13. These machines are located in the
U.S., the U.K., Sweden, and Japan.
(11) For example, BellSouth has argued that the current monopoly system has led to inconsistent levels of service
(e.g., slow response time for assigning domain names) and high prices for registering names. See Comments of
BellSouth In the Matter of Request for Comments on the Registration and Administration of Internet Domain Names,
Docket No. 970613137-7137-01, August 18, 1997. Similarly, MCI has observed that the current system provides NSI
with inadequate incentives to achieve improved reliability and performance. See Comments of MCI In the Matter of
Request for Comments on the Registration and Administration of Internet Domain Names, Docket No. 970613137-
7137-01.

(12) A registry is responsible for delegating Internet addresses (such as Internet Protocol numbers and domain
names), and keeping a record of those addresses and the information associated with their delegation. Examples of
regional IP registries include RIPE, APNIC, and ARIN. Examples of domain name registries include Network
Solutions’ InterNIC operation (.com, .net, and .org) and the ISO 3166 country code registries (e.g., .fr, .de, .uk, .us).
(13) Some commenters (see, e.g., Comments of the Electronic Frontier Foundation In the Matter of Request for
Comments on the Registration and Administration of Internet Domain Names, Docket No. 970613137-7137-01,
August 18, 1997) have recommended that NTIA mandate portability of domain names across registries. Such
portability would eliminate competitive problems arising from lock-in. Whether such portability can be achieved at
reasonable cost is unclear, however; as the NTIA noted in its review of the comments, “the technical implications of
[mandatory domain name portability] were not fully discussed and certainly not resolved.” See NTIA, Summary of
Comments In the Matter of Request for Comments on the Registration and Administration of Internet Domain Names,
Docket No. 970613137-7137-01. If significant lock-in problems develop, NTIA may wish to revisit these technical
issues and consider means for enhancing portability.
(14) Early analyses are Klein, Crawford, and Alchian, “Vertical Integration, Appropriable Rents, and the Competitive
Contracting Process,” 21 J. L. & Econ. 297 (1978); and Williamson, The Economic Institutions of Capitalism (1985).
More recent contributions include Farrell and Shapiro, “Dynamic Competition with Switching Costs,” 19 RAND J.
Econ. 123 (1988); Farrell and Shapiro, “Optimal Contracts with Lock-In,” 79 Am. Econ. Rev. 51 (1989); and
Klemperer, “Competition When Consumers Have Switching Costs: An Overview With Applications to Industrial
Organization, Macroeconomics, and International Trade,” 62 Rev. Econ. Stud. 515 (1995).
(15) See footnote 14, supra. See also Shapiro, “Aftermarkets and Consumer Welfare: Making Sense of Kodak,” 63
Antitrust L.J. 483 (1995); Shapiro and Teece, “Systems Competition and Aftermarkets: An Economic Analysis of
Kodak,” 39 Antitrust Bull. 135 (1994); Kattan, “Market Power in the Presence of an Installed Base,” 62 Antitrust L.J. 1
(1993).
(16) The extent to which current and prospective creators of Internet sites would be aware of the possibility and
consequences of lock-in is unknown. Certainly, at least some of them are aware (e.g., those who raised the issue in
their responses to the NTIA’s July 1997 Request for Comments on the Registration and Administration of Internet
Domain Names). It is not always necessary for all prospective customers to be equally well- informed about this
possibility; if there is a substantial number of well-informed customers, and if vendors cannot easily discriminate
between those who are well- informed, and those who are not, then competition for the former frequently may result
in contractual protections being offered to all. See, e.g., Shapiro and Teece, supra note 15, at 143-45.
(17) From this perspective, then, there is considerable appeal in expanding the number of registries, perhaps even
beyond the five contemplated in the NTIA RFC. We recognize, however, that expanding the number of gTLDs
increases the technical complexity of the tasks that must be carried out by the root server system.
(18) See Shapiro and Teece, supra note 15, at 146-48; Shapiro, supra note 15, at 490- 95.
(19) As noted by Shapiro (supra note 15, at 493-94) and Shapiro and Teece (supra note 15, at 148), in theory buyers
may receive protection against monopoly prices even if they do not take into account future prices when choosing a
vendor. This is because vendors will compete for the ability to “lock-in” customers. If this competition is sufficiently
intense, and if the competition for new customers is price (as opposed to nonprice) competition, the initial price could
fall to the point where all of the future monopoly profits are competed back to consumers. See Shapiro, supra note
15, at 505- 11, for a formal analysis of this proposition. In some of these instances, some inefficiency could remain,
notwithstanding a complete dissipation of any profits from lock-in. This could occur in situations where (for example)
consumers must buy replacement parts for durable goods from the original equipment vendor. Here, the price of the
original equipment would be too low, and the price of replacement parts too high, leading to inefficiently frequent
rates of replacement for the original equipment. See Borenstein, Mackie-Mason, and Netz, “Antitrust Policy in
Aftermarkets,” 63 Antitrust L.J. 455 (1995).

(20) The incentive for vendors to hold-up buyers also will be diminished if the vendor would suffer reputational
damage in other product markets.
(21) See, e.g., Lynk, “Nonprofit Hospital Mergers and the Exercise of Market Power,” 38 J. L. & Econ. 437 (1995).
(22) See, e.g., Simpson and Shin, “Do Nonprofit Hospitals Exploit Market Power?”, Int’l J. Econ. of Bus., forthcoming,
1998; Dranove and Ludwick, “Competition and Pricing by Nonprofit Hospitals,” J. Health Econ., forthcoming, 1998;
Keeler and Melnick, “Effects of Competition on Nonprofit and For-profit Hospital Prices,” J. Health Econ., forthcoming,
1998.
(23) See Besen and Saloner, “The Economics of Telecommunications Standards,” in Crandall and Flamm, eds.,
Changing the Rules: Technological Change, International Competition, and Regulation in Communications (1989).
Much standard-setting activity typically falls into this category, such as the activity carried out by the Society of
Automotive Engineers (“SAE”), the American National Standards Institute (“ANSI”), the International Standards
Organization (“ISO”), and the International Telegraph and Telephone Consultative Committee (“CCITT”).
(24) See Lemley, “Antitrust and the Internet Standardization Problem,” 28 Conn. L. Rev. 1041, 1063-65 (1996).
(25) In a recent case, the FTC charged that Dell Computer Corporation restricted competition in the personal
computer industry and undermined the standard-setting process by threatening to exercise previously undisclosed
patent rights against computer companies adopting the VL-bus standard, a mechanism to transfer instructions
between the computer's central processing unit and its peripherals, such as a hard disk drive or video display
hardware (In re Dell Computer Corp., Docket No. C-3658 (May 20, 1996) (Comm’r Azcuenaga dissenting)).
According to the FTC complaint detailing the charges, Dell was a member of the Video Electronics Standards
Association (“VESA”), a non-profit standards-setting organization, when the association began developing a design
standard for a computer bus design to respond to demand for faster graphics performance. VESA members,
representing virtually all major U.S. computer hardware and software manufacturers, voted to approve the new VL-
bus standard in 1992. As part of the approval process, a Dell representative allegedly certified that he knew of no
patent, trademark or copyright that the bus design would violate. After the VESA VL-bus design standard became
successful and computer manufacturers had sold more than 1.4 million personal computers incorporating the VL-bus,
Dell contacted certain VESA members and asserted that it had obtained a patent in 1991 that they were violating by
using the VL-bus standard. To settle the FTC’s charges, Dell agreed not to enforce its patent rights against computer
manufacturers using the VL-bus.