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What recourse does a domain name owner have against a registrar that wrongly transfers ownership of the owner’s domain name to someone else? Until recently, very little — other than requiring the return of the domain name to its rightful owner. A recent decision by the 9th U.S. Circuit Court of Appeals [FOOTNOTE 1] however, employed tort law — specifically, conversion — to offer a way for an aggrieved owner to recover against a registrar that had made an improper transfer. THE ALLURE OF SEX.COM Gary Kremen had vision. Way back (at least in Internet-years) in 1994, when Network Solutions Inc. (then the sole domain name registrar) was giving away domain names for free, he applied for and was granted one of the premier domain names in all of the dot-com world: sex.com. Kremen listed his company, Online Classifieds, as the owner of sex.com and himself as the contact person. Despite the now-obvious potential for the sex.com domain to be the platform for a lucrative sex-oriented Web site, Kremen failed to take immediate advantage of the opportunity. The sex.com domain remained undeveloped for a year or so while Kremen, perhaps taking things one step at a time, focused his energies on developing his dating service at match.com. Enter Stephen Cohen, who also saw gold in the sex.com domain. Instead of doing the honorable thing and paying Kremen for sex.com, Cohen fabricated letterhead for Kremen’s company and sent Network Solutions what purported to be Online Classified’s authorization to transfer sex.com to Cohen. Network Solutions, acting on the apparent authority of the letter (but never confirming the transfer with Kremen, the contact person for the domain name), duly transferred ownership and control of sex.com to Cohen. When Kremen discovered the unauthorized transfer some time later, Network Solutions told him it was too late to reverse it. Cohen developed a Web site leveraging the sex.com domain name that earned him tens of millions of dollars. Kremen, in the meantime, embarked on a long odyssey to recover his lost domain name — and Cohen’s ill-gotten profits. Cohen proved to be a wily adversary, wiring his assets to offshore accounts even in the face of a court order freezing them, stripping his seized real estate of appliances and fixtures, and eventually fleeing the country as a fugitive. Kremen’s successful $65 million judgment against Cohen remained unsatisfied. PURSUING NETWORK SOLUTIONS Kremen then turned to Network Solutions for satisfaction; it had, after all, turned over the sex.com domain name to Cohen. The district court granted Network Solution’s summary judgment motion against all of Kremen’s claims. [FOOTNOTE 2] His implied contract claim failed because he had registered sex.com for free and so there was no consideration. His third-party beneficiary claim failed because the underlying agreement between Network Solutions and the National Science Foundation (authorizing Network Solutions to register domain names) did not clearly grant enforceable contract rights to third-party domain name registrants such as Kremen. Kremen also failed on his conversion claim. The district court concluded that, while the sex.com domain was his property, it was intangible property to which the tort of conversion did not apply. Finally, Kremen’s conversion by bailee claim failed because the court found that Network Solutions was not a bailee. Kremen appealed. The 9th Circuit panel considered each of his claims, and agreed that, as a non-paying customer, Kremen had given no consideration for the sex.com domain name and so could not assert a breach of contract claim. The panel also agreed with the district court, for similar reasons, on the third-party beneficiary claim. CONVERSION ISSUE The appellate court parted ways with the district court, however, on the issue of conversion. Under California law, for Kremen to establish the tort of conversion he had to show “ownership or right to possession of property, wrongful dispossession of the property right and damages.” [FOOTNOTE 3] Network Solutions conceded that Kremen had a property right in the sex.com domain name, and the 9th Circuit (as well as the district court) agreed. The court discussed the general concept of property as including “every intangible benefit and prerogative susceptible of possession or dispossession.” [FOOTNOTE 4] It applied a three-part test to determine whether a property right existed, first, looking at “an interest capable of precise definition”; second, determining whether that interest was “capable of exclusive possession or control”; and third, considering whether the putative owner had “established a legitimate claim to exclusivity.” [FOOTNOTE 5] Domain names satisfied each element of the test. They are well-defined interests, leading Internet users to a specific “place” on the Internet; the registrant alone has exclusive ownership of the name; and the registered owner of a domain name has a legitimate claim to exclusive use of that domain name. While sex.com easily met the standard test for property, as a registered domain name on the Internet it was clearly a species of intangible property. It was the intangible nature of the property right that was the sticking point for the district court. Traditionally, the concept of conversion applied only to tangible property, since it was by definition the unlawful taking of another’s goods. The 9th Circuit pointed out, however, that this distinction had eroded over time, and had been disregarded to some degree in almost every jurisdiction (including New York [FOOTNOTE 6]). The court noted that one way some courts have reconciled applying conversion to intangible property is to look for some document into which control of the intangible property is “merged.” The merger concept requires that some right of possession or some intangible obligation be represented by the document. It is codified to some extent at �242 of the Restatement (Second) of Torts. The 9th Circuit concluded, however, that under California law there did not have to be a merger of the intangible property right with the document that evidenced some sort of “control” or “obligation” related to the property. It cited by way of example shares of stock in a corporation, which may be converted even if the share certificates representing the stock are not. Similarly, an audiotape or transcript may record a copyrighted broadcast, but neither represents the copyright owner’s intangible interest in that broadcast. In the end, the court found that Kremen’s sex.com domain name satisfied the tests for a species of property capable of being converted. As for a “document” to which the intangible domain name could relate, the court accepted the argument that the Domain Name System (or DNS) — an electronic database distributed worldwide that acts as sort of a “phone book” for domain names, associating specific domain names with particular computers — qualified as a document evidencing Kremen’s ownership interest in sex.com. The panel dismissed Network Solutions’ attempts to discount the DNS as a document on various grounds, including that a domain name recorded in the DNS really consists of multiple records stored in different places, and that the DNS is updated every 12 hours. The court summed up its rationale for overturning the district court on the conversion issue as follows: [T]here is nothing unfair about holding a company responsible for giving away someone else’s property even if it was not at fault. Cohen is obviously the guilty party here, and the one who should in all fairness pay for his theft. But he’s skipped the country, and his money is stashed in some offshore bank account. … Negligent or not, it was Network Solutions that gave away Kremen’s property. Kremen never did anything. It would not be unfair to hold Network Solutions responsible and force it to try to recoup its losses by chasing down Cohen. This, at any rate, is the logic of the common law, and we do not lightly discard it. GOING FORWARD The Kremen decision is likely to have an immediate impact. His was not the only domain name to have been transferred by mistake. Other aggrieved domain name owners can be expected to cite to Kremen as authoritative or persuasive precedent as they pursue conversion claims against domain name registrars. The obvious target for many of these suits will be VeriSign Inc., which now owns Network Solutions (although it recently announced its intention to sell off most of the portion of that company that operates as a domain name registrar). For years, Network Solutions was the sole entity authorized to issue domain names in the dot-com domain. For a good portion of that time, it did so for free. It was also responsible for the transfer and re-transfer of domain names, and for re-registering names that were up for renewal. The likelihood that Kremen’s sex.com domain name was the only one transferred by mistake is very low. With the Kremen decision now in force, Network Solutions and other registrars could face substantial liability for their past mistakes, particularly where the mistakes resulted in the new domain name owners reaping substantial profits by way of the domain. Domain name registrars may react to Kremen by attempting to use choice-of-law clauses to select law that is less amenable to conversion claims or, more likely, language that will limit their liability significantly for a mistaken transfer or failure to renew. Efforts such as these, however, will not remedy past mistakes, mistakes that could prove costly if the analysis of Kremen is adopted by other jurisdictions. Kelly D. Talcott is a partner at Pennie & Edmonds. If you are interested in submitting an article to law.com, please click here for our submission guidelines. ::::FOOTNOTES:::: FN1 Kremen v. Cohen, 337 F.3d 1024 (9th Cir. (Cal.) 2003) FN2 Kremen v. Cohen, 99 F. Supp.2d 1168 (N.D. Cal. 2000) FN3 G.S. Rasmussen & Assocs., Inc. v. Kalitta Flying Serv., Inc., 958 F.2d 896, 906 (9th Cir. 1992). FN4 Kremen, 337 F.3d at 1030, citing Downing v. Mun. Court, 88 Cal. App. 2d 345, 350 (1948). FN5 Id., quoting from G.S. Rasmussen, 958 F.2d at 903. FN6 Astroworks, Inc. v. Astroexhibit, Inc., 257 F. Supp. 2d 609, 618 (S.D.N.Y. 2003) (Allowing plaintiff to maintain claim for conversion of Web site).

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