The legal battle over the sex.com case may be over, but there seems to be no end to the handkerchief when it comes to online domain names.
In Kremen v. Cohen, the US Court of Appeals for the Ninth Circuit recently rejected Porn King Stephen Michael Cohen’s latest appeal of a $ 65 million award for original sex.com registrant Gary Kremen. Kremen alleged that Cohen misappropriated that domain name.
Kremen settled his conversion claim, claiming that the domain name was wrongly transferred to Cohen, with the deep pocket available immediately, Network Solutions Inc.
NSI, based in Herndon, Virginia, was the registrar for the sex.com domain. He allegedly allowed the domain name to be transferred to Cohen without Kremen’s consent. The confidential settlement was reportedly for around $ 15 million.
In the course of this decade-long legal adventure, Kremen helped break new ground in the field of registrar liability and domain name law.
The sex.com case began in 1994, before the explosion of the Internet as a means of selling products, services and pornography. When Kremen first registered sex.com, only one company, NSI, registered names and gave them away.
Kremen and the courts have been forced to grapple with the thorny question of whether a domain name can be converted, a legal theory that typically requires some tangible property to be misappropriated by someone else without their consent. The legal confusion was compounded by the fact that there was no enforceable contract between Kremen and NSI, as Kremen had not paid any consideration for the domain.
But the method by which control of the domain was taken from Kremen was quite old-fashioned. It was achieved through simple forgery and fraud.
Cohen sent a letter to NSI allegedly coming from Kremen’s company, renouncing any interest in sex.com, which Kremen had left inactive, and asking Cohen to inform NSI. The letter was allegedly signed by Kremen’s then-housemate, although the court later noted that her signature was misspelled.
NSI did nothing to verify the authenticity of the letter and, accepting the letter verbatim, transferred the sex.com registration to Cohen. He then built a multi-million dollar porn empire around the domain, much to the chagrin of Kremen, who by then recognized the tremendous value of a generic second-level domain name as “sex” in the dot-com world.
Millions of dollars and several court battles later, Kremen managed to get the sex.com domain registration back. To begin with, he obtained a $ 40 million compensatory award and a $ 25 million punitive damages award from the United States District Court in San Francisco against Cohen, who apparently took all of his assets and fled the United States to a place undisclosed where even the bounty hunters hired by Kremen can’t find it.
Important issues remain
If Kremen is to collect this judgment and if the case is finally over, important legal issues remain to be resolved.
In 2003, in Kremen c. Cohen, the Ninth Circuit reversed the judgment and held that an Internet domain name is property subject to being misappropriated or converted by another. The ruling allowed tort claims to be filed when a domain name is improperly transferred even though there is no enforceable contract or when contractual remedies are too limited. Still, the problem remains open.
The Ninth Circuit based its ruling on its self-described “grudging reading” of California law as to whether a domain name fell within an exception that allowed intangible property not merged into some document, such as a stock certificate, was the subject of a conversion claim. . The question of whether something is convertible property is not a federal legal question, but one of the state laws.
The federal appeals court in this case had offered the opportunity to clarify California law, via certified question, to the California Supreme Court. But that higher court objected. When forced to make the determination from California law itself, the Ninth Circuit interpreted California jurisprudence of the late 19th century to allow such a claim despite the argument that the domain name was nothing more than a routing protocol. and therefore it was not tangible property.
The Ninth Circuit held that the domain name system was in fact a document or collection of documents stored in electronic format. The court determined that the domain name is similar to a stock certificate, that it is associated with intangible property, and that the intangible value of a domain name is associated with the records of the domain name system. Such registries associate word-based domain names with particular networked computers on the Internet.
But the Ninth Circuit went further. It indicated that if necessary to do so, it would maintain all assets, tangible or intangible, as susceptible to conversion, and would reject the approach established in the “Reaffirmation (second) of the Tort Law” that allows conversion. only where there is a fusion of intangible property in some document.
However, because this decision is based on a federal court’s interpretation of the law of one state, it does not set a strong precedent for other courts applying the property laws of different states. In fact, other federal decisions, especially those in the Eastern District of Virginia, where NSI was headquartered, argue otherwise. It remains to be seen where the other circuits or states will fall in this debate.
The dilemma remains
Kremen’s victory and the eventual NSI deal have not deterred continued shenanigans or sloppiness with domain names, as one of New York’s oldest commercial Internet service providers, Panix.com, recently experienced.
In mid-January this year, ownership of the Panix.com domain name was moved to Australia, the company’s domain name server records were moved to the UK, and company email was redirected to a company. in Canada, all without the knowledge or consent of Panix.com.
The fiasco left Panix.com customers, many of whom are in New York City, Long Island and New Jersey, deprived of Internet and email access for a few days, and potentially compromised. customers’ private email. and passwords.
Two well-known domain registrars were involved in the Panix.com incident, but proper verification of the transfer request was not obtained. The receiving registrar in Australia, responsible for obtaining validation, had delegated responsibility to its reseller, who was unable to obtain validation.
In its investigation of the Panix.com incident, the Internet Corporation for Assigned Names and Numbers (ICANN, a private non-profit corporation that currently governs the domain name system), expressed concern that the registrar of the recipient would have delegated the verification to a third party. resell. But a proposed rule that would have required the recipient’s registrar to have sole responsibility for verifying the transfer request was rejected when ICANN recently adopted new procedures to regulate domain name transfers from one registrar to another.
Panix.com was able to get your domain name back quite quickly. It took a given Kremen several years and many legal fees to do so. Others may not do so well. Domain name owners must exercise vigilance and diligence. The courts will have to continue to deal with the inevitable claims and disputes.
We’ll see where other courts end in determining whether a domain name is property and how they will address the ongoing and thorny legal issues in this area.
Jose I. Rojas is a partner at the Rojas Law Firm in Miami. He is a past chair of the computer law committee of the Florida Bar and a member of the Internet Committee of the International Trademark Association.
