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21 August 2000
Sex.com fight rages
Martin Kady, San Jose Business Journal

Buried among the reams of mundane court documents at the U.S. District Court in San Jose is a case that has it all: pornography, technology, lawsuits and a complicated trail of offshore companies.

It's a battle that pits a Silicon Valley businessman against a man who runs a porn site from Tijuana for a company that is incorporated in the Virgin Islands.

And, of course, at the nexus of this quietly simmering story is money. Not the kind made in venture capital and IPOs, but money from the erotic side of the Web.

The dispute, ongoing for two years, centers on a domain name that may be one of the most valuable on the Web: sex.com.

The case between Gary Kremen, the Bay Area businessman, and Stephen Michael Cohen, who lives in Tijuana and runs the porn site Sex.com, may be settled in the coming months.

The name sex.com originally was registered with Network Solutions in 1994 by Mr. Kremen, a former engineer and angel investor who has made millions investing in startups. In the lawsuit, he alleges that in 1995 Mr. Cohen stole the domain name using bogus documents.

Mr. Kremen sued Mr. Cohen in 1998 in an attempt to regain ownership of sex.com, alleging Mr. Cohen used forged letterhead to pull off the transfer of the domain name. Network Solutions, which registers the majority of the world's domain names, approved the transfer of sex.com from Mr. Kremen to Mr. Cohen based on the letter Mr. Kremen says was a forgery.

Mr. Cohen claims the transfer of the domain name was legitimate, carried out by a former roommate and business associate of Mr. Kremen's.

Since he gained control of the domain, Mr. Cohen has operated Sex.com, reportedly worth $250 million. The domain names registry operated by Network Solutions lists Ocean Fund International, a Virgin Islands company, as the owner of Sex.com, with Mr. Cohen as the administrative contact for the domain.

The case has dragged on for two years. But some key motions will be heard on Sept. 11, including a motion by Mr. Cohen to dismiss the case. In the coming months, the case could go to trial unless Judge James Ware throws it out.

"Fighting over sex.com is really a tawdry thing," Mr. Kremen admitted. "But it has value and it's a business decision" to fight the case in court.

Mr. Cohen believes the lawsuit filed against him and his company will never see the light of day. Mr. Kremen thinks he'll win the case, and perhaps sell sex.com to the highest bidder. Of course, these two men don't agree on much.

As the lawsuit has dragged on, Mr. Kremen, 36, has changed lawyers four times. Mr. Cohen, 52, has countersued Mr. Kremen, accusing him of libel.

Through court documents, the two have traded barbs, accusing each other of fraud, document destruction and defamation of character. Mr. Kremen has tried to make Mr. Cohen's criminal record an issue, but it has not affected the lawsuit. Mr. Cohen served three years in federal prison in the early 1990s in California after being convicted of bankruptcy fraud, false statements and obstruction of justice, according to a spokesman at Lompoc Federal Correctional Institute.

Mr. Cohen declined to be interviewed at length for this story.

"We really don't comment about cases with pending motions in court," he said when contacted at the Tijuana office of Sandman International, an Internet service provider he also manages.

It's not clear how much the domain name sex.com would sell for if it were put on the auction block. Other generic but valuable domain names, like business.com, have sold for millions of dollars.

One thing is clear: Mr. Cohen has made a lot of money running his site. Court records and press reports have said he makes $18 million a year and owns $100 million in stock options in the holding company that manages Sex.com.

Mr. Cohen said he "wouldn't dispute" those numbers.

Mr. Kremen, who lives in San Francisco, said his current occupation is private investor. He has made money from very early-stage investments in companies such as Interwoven and Resonate, Silicon Valley firms that are now publicly traded. He also founded a dating service called Match.com.

Mr. Kremen said the lawsuit has hurt his reputation personally and professionally, but he says he's not willing to drop the action anytime soon. He believes the amount of money he regains by selling the domain name will more than offset the "hundreds of thousands" he says he has spent in legal fees.

The outcome of the case hinges on whether Judge Ware believes the 1995 documents transferring ownership of sex.com were forged.

Ellen Rony, a Sausalito resident and Internet consultant who wrote "The Domain Name Handbook," a guide to domain name policies and history, has testified in court depositions--at Mr. Kremen's request--that she believes the documents were forged.

"This was probably the most lucrative domain name of all the dot-coms," Ms. Rony said. "Even a blind man in the closet would have figured out this transfer wasn't right. Now somebody who didn't have authorization to transfer that name has made a global name for this domain."

The documents allegedly were signed by Sharon Dimmick, a former roommate of Mr. Kremen's, thus transferring the name. Mr. Cohen, in court filings, has said that Ms. Dimmick was an employee of Mr. Kremen's business at the time, Online Classifieds, and the transfer of sex.com was agreed to by both parties.

Mr. Kremen laughs at this presumption, saying Ms. Dimmick never had any authority to write a letter to Network Solutions.

Mr. Cohen, who began running computer bulletin board sites for sex in 1979, said he copyrighted sex.com before Mr. Kremen owned the domain.

"Gimme a break--dot-coms didn't even exist in 1979," Mr. Kremen said.

Network Solutions has tightened its rules for transferring domain names since 1995, and now requires notaries and third-party witnesses. Judge Ware let Network Solutions off the hook in a May ruling that said Network Solutions was merely providing an administrative function and should not be held liable for a third party's actions.

Although the dispute centers on a very valuable domain name, legal experts say people shouldn't go looking for the case to set any precedent.

"It seems pretty case-specific. Ultimately, whether this is intellectual property depends on the domain name," said Rochelle Alpert, a partner at San Francisco-based Brobeck Phleger and Harrison, who has handled Internet copyright and trademark cases. "If this was Cisco, you'd have a different result."

Still, the dot-com world and the legal world are watching this case, if only as voyeurs.
"It doesn't sound like a landmark case," Ms. Alpert said. "The only reason people are interested in this is because it's sex.com."

 

 

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