Article - Court to test property status of Domain Names (May 2002)
- The claim
- The Domain Name System
- EFF Submission
- AIRA Submission
- Property nature of domain names
- Uniquely identifiable
- Analogy with telephone numbers
The 9th U.S. Circuit Court of Appeal is currently considering an important aspect of Internet law in the case Kremen v Cohen.
The case began when Gary Kremen sued Stephen Cohen and Network Solutions Inc. (now VeriSign following a takeover) and others, claiming that Cohen had hijacked his Internet domain name, ‘sex.com’. The trial court ruled that Kremen was entitled to $65 million in damages for the loss of the domain name and associated income. However, the trial court found that the domain name registrar -VeriSign - was not liable for its role in allowing the hijack of the domain name.
In the current appeal, Kremen alleges that VeriSign should be held liable for part of the damages. VeriSign is the largest domain name registrar, and is contesting the appeal.
The case may prove vital in determining the application of property law to the Internet, and both the American Internet Registrants Association and the Electronic Frontier Foundation (EFF) have submitted amicus briefs, supporting Kremen’s claims against VeriSign.
The case is also the first Internet governance litigation to reach a federal appeals court in the US.
Gary Kremen was the owner of the sex.com domain, having registered the domain with Network Solutions Inc in 1994. However, Kremen did not develop the site and concentrated his efforts on a dating service he delivered at the domain ‘match.com’. In 1995 Stephen Cohen fraudulently arranged to have the domain name transferred to him. He forged a letter asking NSI to transfer sex.com from Kremen to Cohen’s company, and then developed a multimillion dollar pornography website at sex.com. NSI was the sole domain name registry for dot-com domain names at that time.
When he discovered the fraud, Kremen demanded that NSI return the domain name to him. NSI refused. In 1998, Kremen sued Cohen under several different causes of action to reclaim the domain name sex.com:
- Conspiracy to Convert
- Unfair Competition
- False Advertising
- Slander of Title
Kremen sued NSI under the following causes of action, based on NSI’s position as the company responsible for registering Internet domain names and ensuring their proper registration and protection.:
- Conversion by Bailee,
- Breach of Trust
- Negligent Misrepresentation
- Breach of Contract
- Breach of Third Party Beneficiary Contract
Kremen also sought a declaratory judgment as to the respective rights to the Internet domain name sex.com.
This article focuses on the claims against NSI which relate to ‘conversion’, a tort typically reserved for tangible property.
The court stated, ‘The elements of conversion are as follows: (1) the plaintiff has ownership or right to possession of the property at the time of the conversion; (2) the defendant’s conversion is by a wrongful act or disposition of property rights; and (3) damages.’ The trial court determined that domain names only constitute intangible property, and held that the domain name could not be subject to conversion unless it was represented by something tangible (such as a share certificate).
The Court did determine that the domain name should be returned to Kremen. However, without succeeding on the conversion arguments, Kremen was unable to obtain any damages from NSI.
Following the ruling, Kremen argued that the result was ridiculous. ‘If you follow the logic here, it’s open season for stealing domains. If I go hijack your domain and use it for a year, you have absolutely no recourse.’
The Domain Name System
Domain names are the text addresses for locations on the Internet. All locations on the Internet are actually identified in numerical form, but fortunately a text address can be matched to the numerical address so that users can remember locations and navigate more easily. The system of allocating domain names to particular organisations and individuals is known as the Domain Name System (DNS).
Generic Top Level Domains (gTLDs) are the highest level domains and are international - ie they are not intended to indicate any particular country. The domain suffix indicates the nature or type of content held at that Internet location. These include .com for companies, .net for networks and .org for organisations.
Individuals and organisations can apply to register a domain name, however the particular procedure and rules for each domain can be fairly complicated. One general rule applying to most domains including the .com domain, is that domain names are issued on a first come first served basis.
The Electronic Frontiers Foundation (EFF) lodged an amicus brief supporting Kremen’s appeal. Their lengthy argument is best summed up in the following passage:
‘The Domain Name System is critical to the proper functioning of the Internet. If the DNS is manipulated, mismanaged or neglected, domain name registrants will be unable to maintain their domains, Internet users will be unable to find the websites they are seeking, website hosts will be unable to publish their information, ideas, and art to the Web and all publishers will be unable to convey their speech to others through e-mail or other Internet communication tools. These critical human rights to speech and association must not be held hostage to the interests, negligence or even the whim, of any corporation. They must be managed by an entity that is responsible for their proper management for the benefit of the human race and accountable for its performance of that responsibility. The district court’s decision to immunize NSI from such accountability is inherently inconsistent with these principles.’
The American Internet Registrants Association (AIRA) also filed an amicus brief asking the court to rule that VeriSign is liable for mishandling Internet domain names. AIRA represents the interests of individuals and businesses with Internet domain names before the US Congress and the Internet Corporation for Assigned Names and Numbers (ICANN).
The AIRA claims that it has received countless complaints from Internet domain name registrants who have lost their domain names because of VeriSign’s negligence. There were three categories of complaints:
1. Cases where names are lost because appropriate procedures to prevent domain name hijackings were absent.
2. Cases where VeriSign improperly released the domain to the public.
3. Cases where VeriSign failed to send renewal notices to the correct address.
Property nature of domain names
Both the EFF and AIRA argue that domain names can constitute property. Though often compared to other forms of intangible intellectual property such as trademark and copyright, domain names are, in fact a completely unique form of property. The differences appear most dramatically when you consider infringements, including breaches of trademark and copyright. Specifically, while many forms of intellectual property can be ‘used’ or ‘appropriated’ without depriving their owners of their use, domain names cannot.
A trademark or a copyrighted work can be wrongfully used by a third party, and will still be valuable to its owner. There is, however, no way that a domain name can be used by more than one party.
In the famous Panavision v Toeppen case, the Court recognised that ‘trademark law permits multiple parties to use the same mark for different classes of goods and services; however, the current organisation of the Internet permits only one use of a domain name, regardless of the goods or services offered.’ In other words, the holder of a trademark does not own the words in their mark to the exclusion of all others, while the owner of a domain name does.
Some domain names - like sex.com - are valuable assets as domain names irrespective of any goodwill which might be attached to them. This is because there is a market for generic or clever domain names that do not violate a trademark or other right or interest, but are otherwise extremely valuable to Internet entrepreneurs. Generic or clever domain names composed of common words will likely be easily located by search engines, and thus easily found by consumers, making whatever is being marketed at the site much more likely to be sold.
EFF and the AIRA argue that domain names, unlike trademarks and copyright, possess all the traditional indicia of property. Though intangible, they are readily identifiable items, possessing intrinsic value, that are capable of being bought and sold on the open market.
Conversion, historically, has not been an appropriate cause of action where the subject matter of the tort is purely intangible property such as goodwill or trade secrets. In the Kremen case, the trial court added domain names to this category of intangible property, stating ‘a domain name is not ‘merged in or identified with’ a document or other tangible object,’ and thus cannot be ‘protected intangible property.’ This appears to be a clear misunderstanding of what kind of property a domain name is.
EFF and AIRA argued that Kremen’s appeal should be allowed because NSI had wrongfully transferred the registrant-owner’s valuable domain name to a third party. They argued that conversion is an appropriate cause of action in such circumstances. (They also noted that NSI had, in other proceedings, acknowledged that the right to use a domain name is a ‘form of intangible personal property.’)
In California, the test of conversion is ‘the unwarranted interference by the defendant with the dominion over the property of the plaintiff.’ Where absolute dominion over the subject matter cannot be determined (as, for example, would be the case with good will), or where the defendant’s wrongful behavior can be said to have interfered with the plaintiff’s dominion, rather than abrogated it (as, for example, would be the case with copyright infringement), conversion does not apply.
However, EFF and AIRA argue that all Kremen had to prove under California law to succeed in conversion, was that the property in question is either tangible or ‘otherwise uniquely identifiable’. It is not the presence or absence of ‘documents’ that makes intangible property convertible. ‘Representation by documents’ is merely shorthand for any method of establishing the specific identity of property, so as to establish the right of a specific claimant to dominion over it.
While documents (eg share certificates) serve this ‘identification’ purpose in many circumstances, they are not necessary here because the very essence of a domain name is its uniqueness. The entire purpose of registering a domain name with NSI is to acquire the contractual right to use a unique domain name for a specified period of time. As a result, registered domain names must be convertible property.
Conversion is, of course, a matter of strict liability, and once a court decides that a domain name is convertible property, NSI would be found to be at least partly liable for damages.
Analogy with telephone numbers
It is important to consider for a moment the ‘telephone numbers’ argument - which appears each time the property nature of domain names is discussed.
Many US courts have found that businesses hold property rights in their telephone numbers. The argument is that telephone numbers are rightfully the property of subscribers because, as one court noted, ‘telephone numbers constitute a unique property interest, the value of which increases as the number becomes widely known through publication in guidebooks, posting on billboards, and imprinting on publicity items.’
Domain names as a rule have even greater value to their owners than do telephone numbers: Unlike a telephone number, a domain name is frequently the name under which the company does business and for virtual companies, the only (or primary) means by which customers can find the entity. In addition, domain names have arguably greater utility and value than telephone numbers because they are used as locators within search engines, portals and Internet computer text to draw traffic to a particular web site.
Even where telephone numbers are not considered the property of subscribers (eg because of contract), courts have held that subscribers cannot be deprived of them without justifiable cause. In the US, the right of telephone companies to ‘alter numbers at will’ has been held to be limited, and has not been ‘construed to authorise the telephone company to exercise arbitrary dominion over the number so as to cause harm and injury to a subscriber’
AFF and the AIRA argue that the law should provide at least as much protection (and at least as many remedies) for domain name owners whose domain names are negligently - or recklessly - taken away.
To date, Gary Kremen’s description of the outcome of the original case as ‘ridiculous’ remains the most appropriate comment on the case. This appears to be one of the greatest examples of the law simply not keeping pace with technology. Domain names are uniquely identifiable (that is in fact their entire purpose) and have at least as much value and identity as a share. The absence of the equivalent of a ‘share certificate’ in relation to domain names should not render domain names as purely intangible.
For owner-registrants of valuable domain names the law of conversion could be a powerful weapon against companies like NSI who incorrectly make their domains available to the public, or who allow hijacking to take place. NSI was the clear winner in round one of this case - much now rests on the appeal.
 Case No. 01-15899 9th Cir. filed May 9, 2001
 945 F.Supp. at 1302.
 Kremen v Cohen and Others, 99 F.Supp.2d at 1173.
 Network Solutions v. Umbro International, 529 S.E.2d 80, 86 (Va. 2000)
 Poggi v. Scott, 139 P. 815, 816 (Cal. 1914).
 In re Security Investment Properties, Inc., 559 F. 2d 1321, 1324 (5 th Cir. 1977)
 See Shehi v. Southwestern Bell Telephone Co., 382 F.2d 627, 630 (10 th Cir. 1967)