A bizarre dispute over millions of dollars made from a sex site on the Internet came before a San Francisco court Thursday, which must decide who owns the sex money -- the site's founder or the man who has been running the site for the last five years.
The founder, Gary Kremen, registered the name sex.com with domain name registrar Network Solutions back in 1994. While he was busy with another site, Stephen Michael Cohen introduced the potentially lucrative name into the market and made millions.
Now Kremen and his lawyers want Cohen to hand over millions of dollars that he made from the Web Site from 1995 to November 2000, when a San Jose court returned the domain name to Kremen.
"Our effort is to recover the money Cohen made during this period," says Tim Fox of San Francisco law firm Kerr & Wagstaffe who are representing Kremen.
Cohen, who is subject to a bench warrant to his arrest, did not appear in court. His attorney, Robert Dormband, told the court that Cohen was "virtually under house arrest in Mexico" where authorities are investigating him for some unspecified crime.
He had failed to appear last week as well, but a civil litigation can continue without the defendant appearing before the court.
Kremen's lawyer expect the court to reach a verdict by Friday afternoon.
Kremen's lawyers produced five witnesses, all of whom testified to issues relating to the design of sex,com and how it generated money.
"We are trying to prove that Mr Cohen in Oct. 1995 fraudulently induced the Internet Registrar, Network Solutions, to change the registration of the domain name to his own name, and that since that time he has made millions from the operation of the websites," said Fox.
"We are asking the court which, has already given us back in November the right to the domain name, to also give us all the profit that Mr. Cohen has wrongfully obtained over the last five years."
Although Kremen got the site registered in 1994, he had not developed a website to accompany sex.com as he was busy launching his online dating service, match.com.
Meanwhile, Cohen, released from a federal prison in February 1995 after serving a 42-month sentence for bankruptcy fraud, grabbed the empty domain name.
In October 1995, Network Solutions received a letter from a company called Online Classifieds Inc. asking the domain be turned over to Cohen. The applicant identified herself as Sharyn Dimmick. Although Dimmick, who was Kremen's roommate until April 1995, later said she did not know Cohen, Network Solutions transferred control of the domain name to Cohen.
After the transfer, Online Classifieds Inc. informed Network Solutions that all correspondence would have to take place via mail or telephone-because Online Classifieds Inc. did not have Internet access.
Cohen developed sex.com into a very successful commercial site. Since, according to a U.S. House of Representatives report, the online pornography sector averaged $2.7 million per day in 1999, Kremen's lawyers say Cohen has made millions.
In November 2000, the U.S. District Court in San Jose found the letter which earned Cohen the domain name was fraudulent. It transferred sex.com back to Kremen.
But Cohen claims he has been using the sex.com name since 1979, long before Dimmick wrote the disputed letter or Kremen got it registered with Network Solutions.
Trademark law allows a founder to own the name without registration if he or she has been using for a period of time. Citing that law, Cohen says he is the rightful owner of the name sex.com.
The San Jose court had also ordered Cohen to and his two other corporate defendants to place $25 million into an escrow account pending final judgment and assessment of damages. The judge also ordered Cohen not to transfer any assets.
Kremen's lawyers say that not only Cohen failed to place $25 million under court control, he also has been sending money to foreign bank accounts. On March 5, the court held Cohen in contempt for violating the orders and issued a warrant for his arrest.