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7 Feb 2000
Is there a hex on Sex.com?
Tom Davey, Red Herring

If you believe its proprietor, Sex.com is the best get-rich-quick scheme on the Internet. The company claims that it receives more than 100 million hits daily on its sex.com Web portal. That would be more naughty pictures than sold in all of America's red-light districts combined.

Nine million registered users pay $25 a month, generating $2.7 billion in annual subscription revenue, owner Steve Cohen tells potential advertisers.

Mr. Cohen's claims may indicate an overactive fantasy life, but, undoubtedly, sex sells on the Internet. The site's name is so basic that any Web surfer seeking a thrill is likely to type it into a browser. The name has helped Mr. Cohen run an active business delivering cavalcades of hard-core pictures and text.

Unfortunately for Mr. Cohen, another party is claiming rights to the very name on which his business depends. A lawsuit filed in U.S. District Court in San Jose, California, alleges that Mr. Cohen fraudulently obtained rights to use the name sex.com, and subsequently has been reaping millions of dollars in profits ever since. The legal jousting is a lesson about the fragile foundations of e-businesses that rely on highly coveted names for success.

Forging ahead

The typical procedure for obtaining a Web domain name -- a.k.a. address or URL -- is to apply for it through a domain name registrar. Until last year, Network Solutions was the only company the government assigned to register domain names.

To obtain his domain name, the lawsuit alleges that Mr. Cohen used deceit and forgery. In 1995, Mr. Cohen, who had been recently released from federal prison after serving an abbreviated 46-month sentence for bankruptcy fraud, false statements, and obstruction of justice, began his plan of deception to create his Internet company, according to the lawsuit, filed by an attorney for Gary Kremen.

According to Mr. Kremen, Network Solutions granted him use of the sex.com domain name in 1994. Such names typically are valid for a two-year period and are renewable every two years at the discretion of the party using the name.

Mr. Kremen claims that in 1995 Mr. Cohen fradulently wrote a letter to himself using letterhead with the name "Online Classifieds Inc.," the name of Mr. Kremen's business at the time. The letter stated that Mr. Kremen had been dismissed from his position at the company and that he no longer had rights to sex.com. The letter also stated that Mr. Cohen was authorized to take title of the sex.com name.

At the bottom of the letter was the signature of President "Sharon Dimmick." Mr. Kremen, who still owned Online Classifieds at that time, insists his company never employed a Sharon Dimmick.

The letter was sent to Network Solutions. In what should have been a red flag, the letter stated that Online Classifieds didn't even have an Internet connection. In other words, such a letter would be like Microsoft stating that Bill Gates doesn't have Windows on his personal computer. In any event, Network Solutions granted the name to Mr. Cohen.

Ever since then, Mr. Kremen has been trying to wrestle back the sex.com name.

Match making

Mr. Kremen also had registered the domain name Match.com . With that name, he built a Web site for introducing people of the opposite sex.

He claims introductions through the match.com site, which he later sold to the Ticketmaster Group , resulted in 2,100 marriages. Mr. Kremen, who insists he has no interest in pornography, says he had planned to use the sex.com name for a Web site devoted to advice and medical information for people engaging in sexual relationships. "My initial plans were to do something along the Dr. Ruth level," he says.

Working with attorney Charles Carreon, Mr. Kremen filed a lawsuit last year in federal court against Mr. Cohen and Network Solutions, asking for the sex.com domain name and unspecified damages.

Mr. Kremen says Network Solutions won't give back the name because it doesn't want to admit it made a mistake. "It's like Ford not admitting the gas tank [on the 1976 Pinto] was defective," he says. "They're concerned about the potential liability and will keep fighting it. They say, 'We'll do something when we get a court order.'"

Virtual law

Mr. Kremen and Mr. Carreon say that Network Solutions claims that domain names aren't considered property, even though the names often are bought and sold for millions of dollars. "If you insist it's not property, then you don't have obligations," says Mr. Kremen.

Attorneys for Mr. Cohen didn't return phone calls from Redherring.com. A Network Solutions spokesman refused to comment on the case, citing ongoing litigation.

The defendants aren't yielding. Network Solutions filed for a summary judgment in an effort to be dismissed from the case without a jury trial. A judge likely will render a decision on the motion by early March. Meanwhile, Mr. Cohen, who allegedly runs his pornography empire out of a shell company in the British Virgin Islands, appeared in San Diego Thursday for a deposition conducted by Mr. Carreon.

Mr. Kremen remains undaunted, defiantly saying, "We'll be asking for some big damages."

 

 

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