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Judge Freezes Internet 'Preservation' Fund

By Rajiv Chandrasekaran
Washington Post Staff Writer
Tuesday, February 3, 1998; Page A06

A federal judge issued a preliminary injunction yesterday that prevents the government from tapping a $46 million fund set up to promote the Internet's "preservation and enhancement." The user surcharges that are generating the endowment likely constitute an illegal tax, the judge said.

The decision throws into doubt the Clinton administration's ability to pay for the development of a "next-generation" Internet this year.

Since 1992, the National Science Foundation (NSF) has required that $15 of the $50 annual fee to register an Internet address be put in the preservation fund. Last summer, congressional budget negotiators decided to dip into the fund, pulling out $23 million to pay for the Next Generation Internet, an administration-backed project to connect federal labs and universities with a network 1,000 times as fast as the current Internet.

But in October, a small group of Internet users filed a class action suit asking that the collection of fees be halted, and that the money in the fund be returned to the people who paid it. The users contended that the NSF fee was an illegal tax because it was not authorized by Congress, an argument that found a sympathetic ear from U.S. District Judge Thomas F. Hogan.

The "plaintiffs have made a substantial showing that the defendants may have collected, and may currently be collecting, the assessment illegally," Hogan wrote in ordering the injunction.

None of the money in the fund has been spent. Hogan's injunction freezes the account until he conducts a fuller hearing into the matter.

Suzanne Nyland, an assistant U.S. attorney in Washington who represents the NSF in the matter, said government has not made "a determination about what steps we're going to take next."

The $23 million was intended to pay for the NSF's share of the $100 million Next Generation Internet project in 1998. A NSF spokeswoman, Beth Gaston, said the agency "needs to review the decision and look at what our options may be" with regard to funding the project.

William Bode, an attorney for the plaintiffs, said he will ask the judge in the next few weeks to order that the money immediately be returned. Bode said he also intends to file a motion requesting that other fees associated with Internet address registration be refunded.

The fee has been collected by Network Solutions Inc., a Herndon company that has had an exclusive agreement with the NSF since 1992 to register addresses that end in ".com," ".org" and ".net." The agreement ends this fall.

The federal government plans to end the surcharge on April 1, according to a White House report on the future of Internet governance released last week. Network Solutions has said it plans to reduce its fees by 30 percent at that time.

© Copyright 1998 The Washington Post Company

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