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19 Jun 2000
Gary, Sex.com and the rude facts of life
Philip Van Munching, Brandweek

My school pal Gary Kremen was sure he owned the most valuable dot-com brand. Was he in for a shock.

Considering that his current legal battle with the undisputed king of net porn has enormous implications for your brand's online identity it's amazing that you don't know who Gary Kremen is. Allow me to introduce you.

A graduate of both Northwestern University (where I met him in 1981) and the Stanford Business School, Kremen is, in his own way an Internet pioneer. In 1994, while most of us were just starting to play with e-mail and online chat, he was building the first of many e-businesses he's been involved with. This one was called match.com, and it was, simply put, computer dating for those with personal computers. It was brilliant, in that it used cutting edge programming to eliminate the stigma of professional matchmaking. No more trips to the mall, no more humiliating self-promotion, now lonely hearts could look for their true love in the privacy of their own homes. Some five years after it was created, match.com was sold to Ticketmaster for $50 million.

Those of us who knew Kremen were not at all surprised by his first foray into e-commerce, because it showcased both his preternatural ingenuity (the design and application of advanced privacy models) and his fondness for all things tacky (dating services). If anything, it confirmed the twisted-genius status he had among his classmates. We'd always seen him as something of a character; unpredictable, a little manic, and yet endlessly fascinating, and fascinated.

And, at his core, just basically whacked. Kremen was the guy who, in the middle of a San Francisco Giants baseball game, would wonder aloud whether a fly ball, falling into an outfield fissure created by a sudden earthquake, would be considered a ground rule double. Kremen was the guy who, when he owed you money would write something that you completely disagreed with on the back of the check, just above where you'd have to sign to endorse it. Kremen was the guy who would take to the desert on a whim, for a seven-day fast, and then send you a postcard describing how the experience affected his plumbing.

So, when he called me in 1994, and said "Dude, you've gotta grab some domains [ldots] start some sites." I didn't take him seriously. Hell, I didn't even understand what he was talking about. Today of course, that sentence needs no translation: Kremen was telling me to register words for potential Web sites, like golf.com or cooking.com. In building his own company Electric Classifieds, he'd registered the aforementioned match.com, along with a number of variations, like matchmaking.com. He also, as it turns out, registered sex.com.

Today there are any number of domain speculators who snap up dot-coms in the hopes of selling them ("squatters" to their many detractors) who would give their proverbial right arm to own sex.com, easily the most potentially lucrative piece of real estate on the Web. I say "potentially" because the value of sex.com depends upon its use; as an informational site, it's worth tens of millions in ad space revenue, as a porn site, its annual value based on both ad revenue and its subscriber base has been estimated conservatively at well over $100 million.

Unfortunately for Gary Kremen, he lost sex.com a little more than a year after he registered it. Actually "lost" is the wrong word. He says it was stolen.

According to a U.S. District Court suit filed by Kremen in San Jose, Calif., sex.com was pilfered by one Stephen Cohen in October 1995, shortly after Cohen was released from California's Lompoc prison, where he'd been serving time for, among other things, bankruptcy fraud. The suit claims that Cohen forged a letter from a fictitious "coworker" of Kremen's, authorizing Network Solutions (NSI), which handled all domain registration at the time, to transfer sex.com from Electric Classifieds to Cohen's company, then called Sporting Houses Management.

Kremen says he "woke up one morning and [sex.com] was gone. Literally gone."

Whatever the facts of the transfer are (and Cohen could not be reached for comment), this much is not in dispute: When Kremen went to NSI to tell: them he'd never authorized the transfer, their response was "Tough luck. It's not our problem." Their policy was (and still is) that disputes over domain names have to be settled between the parties. We'll get to their reasons in a moment.

As Kremen looked into legal remedies soon after he lost sex.com, he says he received a call from someone claiming to be from the Patent and Trademark Office, who very convincingly explained why he probably wouldn't win a case against Cohen. "The guy told me [Cohen] had trademarked sex.com.'" Kremen now believes the caller was Cohen himself. (In May 1996, Cohen actually did apply for a trademark on sex.com; Kremen has opposed the application, which is still pending.)

His case against Cohen is now set to be heard in March of next year, Kremen admits that even if he wins, it won't be easy seizing any of the fortune Cohen has made on sex.com. "He's got all these offshore companies now .. . offshore banks". Trying to find that money is going to be a nightmare." In an inspired bid to locate those banks on his own, Kremen claims to have sent a number of checks to companies Cohen has an interest in, usually in the amount of a dollar or two, with the word "refund" written on the memo line. He says he not only found out where many of the banks handling sex.com money were, but that he riled Cohen in the process. "I got a FedEx box from him one day," Kremen says, "and inside was a blow-up sex doll with the word 'refund' written on it."

Though he remains confident that the court will eventually order NSI to turn sex.com back over to him, Kremen doesn't seem quite so sure anymore that he'll ever see a dime in damages, even if he could find Cohen's fortune. In early May, NSI was effectively removed from the list of defendants by a summary judgment in its favor. Presiding Judge James Ware dealt Kremen a blow by ruling that domain names aren't actually property and therefore not subject to property law.

Rather chilling, and worth repeating: domain names aren't property. This goes along with the reasoning behind the Network Solutions policy of non-involvement in registration disputes, which is essentially that Internet registration is a service much like the phone company provides, and so a domain name, like a phone number, isn't really property.

Martin Schwimmer, an attorney--with Fross Zelnick Lehrman & Zissu- specializing in international trademark and domain name law, underscores the dramatic implications Judge Ware's ruling has for marketers. "In view of the aftermarket for domains, there is an absolute need for clarification of what people actually have when they register them," he says, pointing not only to Kremen's case but also to another recent decision involving NSI and a so-called cyber-squatter.

In that latter case, heard last year in the U.S. Circuit Court in Fairfax County, Virginia, James Tombas of Canada was successfully sued by Umbro International (the makers of soccer apparel and equipment) for trademark infringement. Tombas had registered "umbro.com" and then allegedly demanded $50,000 for himself, $50,000 for the charity of his choice, and a lifetime supply of Umbro goods in return for the domain. The court ruled in favor of Umbro, and directed NSI to garnish Tombas' other domain names in order to pay off the monetary damages. In his ruling, Judge Langehorne Keith described domains as "a new form of intellectual property." Responding to an NSI filing in the case insisting that--like phone numbers--domain names are a service and therefore not ownable, Judge Keith wrote, "The fact that this form of intellectual property results from a service that NSI provides does not preclude the property from garnishment any more than the service provided by the Patent Office immunizes patents from garnishment."

Good news for Kremen, right? Wrong: NSI, protecting its turf, successfully appealed the decision to the Virginia Supreme Court in April of this year. A domain name "is the product of a contract for services," the new ruling bluntly states. And NSI does not want you to forget it. In its most recent service agreement, which all of its customers must abide by, the registrar insists that it has the right to terminate its services if a domain registered by NSI is used for "any improper purpose, as determined in our sole discretion."

Further, the service agreement has a non-assignment clause, which means that you really aren't free to buy an already-registered domain name unless the good folks at NSI decide to let you. Even then, any system glitch that enables a third party to swoop in from another registrar and grab your name during the transfer, and you're out of luck. (Don't laugh. That's just what happened to John McLanahan, who lost thousands of dollars when NSI screwed up his purchase of "races.com," and then refused to deal with its mistake beyond asking the new registrar to give it back. The new owner of races.com? A squatter who offered to sell it to McLanahan for $500,000.)

What's a marketer to do in light of these recent rulings? "Well, perhaps they shouldn't be doing business with NSI," suggests Schwimmer, who points out that NSI's government-granted monopoly on domain registration ended last year. Now there are several registrars, and a number of them have service agreements more favorable to the customer. One such agreement, from gandi.net, says plainly, "The client owns the registered domain name." It's perhaps not surprising, then, that gandi.net ranks near the top of the two dozen registrars rated by the independent Domain Name Buyers' Guide, while NSI is near the bottom with a rating of one star out of a possible five.

In 1994, of course, Gary Kremen didn't have access to gandi.com, internetnamesww.com (the Buyers' Guide top-rated site) or any other registrar besides NSI. Which means that in his case against Cohen, the folks with whom he registered sex.com have a track record of fighting against the notion of ownership he's trying to assert. He finds bitter irony in the fact that NSI now has its own Web site for domain resellers, though of course it doesn't call them that. So careful is NSI in the anti-property language it uses in its new In Search Of [ldots] service that sellers are called "registrants," and selling is referred to as "finding a new home for your domain name [ldots] and [having] the new registrant pay you!"

Mostly, Kremen remains "dumbfounded" that at least two courts have now backed up NSI's argument that domain names are not property. He thinks the potential harm to marketers, if these rulings stand, could be enormous: "When squatter's rights prevail, what's to keep anyone from stealing anyone else's brand identity? In the real world, if I come up with a brand of coffee and decide to call it Folger's, the people from Folger's have some recourse. On the Net, they're out of luck."

Well, maybe that's not entirely true; court rulings so far have tended to side with the owners of trademarked names (like Umbro) against cybersquatters trying to hold them up for large sums of money, but for the vast majority of Web site owners who don't hold trademarks, Kremen's analogy is well put.

Judge Ware, in his ruling against Kremen, says that it's up to the legislature to create laws protecting domain names, and in the absence of those laws, he'd be overreaching if he ruled in Kremen's favor. Whether he's being prudent or obtuse (in not recognizing the obvious difference between a random phone number and a name brand), the Judge's ruling throws into question the ability of most online marketers to own their own identities.

Should he prevail against Cohen in court, Kremen says he plans to turn sex.com into an informational sight, a la Dr. Ruth Westheimer. Should he lose, and should the court continue to insist that domains are not property [ldots] well, maybe he ought to just steal drruth.com.

 

 

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