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7 Jan 2003
Ninth Circuit Turns to California Supreme Court For Answers in Sex.com Case
[A law publication]

Reluctant to extend tort law into cyberspace, the 6-year-long legal battle over the highly sought after domain name sex.com continues after the 9th Circuit Court of Appeals certified a question for the California Supreme Court to decide whether an Internet domain name registry can be held liable for fraudulent domain name conversion.

In a case previously reported by 2002Law, Kremen v. Cohen, Gary Kremen, original owner of sex.com, sued Stephen Cohen in U.S. District Court for sending a fraudulent letter to Network Solutions, Inc. to have ownership of sex.com transferred from Kremen to Cohen. District court Judge James Ware sided with Kremen, awarding him a $65 million judgment.

However, the court dismissed claims against Network Solutions, finding that a private company serving as the sole domain name registry is immune from civil suit in cases of negligent mishandling of domain names. Kremen appealed, contending that Network Solutions should be liable for negligence for not verifying the letter that served as the basis for the domain name conversion.

According to the Restatement of Torts, Second, § 222A, conversion is an “intentional exercise of dominion or control over a chattel which so seriously interferes with the right of another to control it that the actor may justly be required to pay the other the full value of the chattel.”

According to the 9th Circuit, however, such a case of conversion is not so clear here, where the property at issue, a domain name, is considered intangible. Over a vigorous dissent, the 9th Circuit asked the California Supreme Court to decide the issue. Stephen Cohen has since apparently fled to Mexico, and although Kremen was able to secure some of Cohen’s property in Rancho Santa Fe, California, Network Solutions remains to be a potential source of monetary relief for Kremen.

That's right, folks. According to Judge James Ware of the U.S. District Court in San Jose, California, domain names are, in fact, nothing more than a service, just like your phone number or your PO box.

The case that led to Judge Ware offering his ruling reads like something out of a con artist's how-to handbook. Way back in early 1994--the virtual Pleistocene of the World Wide Web--an entrepreneur named Gary Kremen read the writing on the bathroom wall and realized that someday soon sex online was going to mean big money. And what better way to cash in than to own the domain www.sex.com? The early bird gets the worm, and Kremen was nothing if not early. He got the goods. While he was at it he nabbed a bunch of other domains such as classifieds.com and match.com and set about building businesses around them.

Meanwhile, twice-convicted embezzler Stephen Cohen was cooling his heels in Lompoc Federal Pen for bamboozling an elderly woman out of $200,000. Those educational programs in Lompoc must have been ahead of the curve on the Internet game because, while the rest of us were still thinking that the Internet might yield a good support group, Cohen had lasered in on its commercial potential.

Less than a year after getting out of the pokey in February 1995, Cohen allegedly had forged a letter from a non-existent president of Online Classifieds, Kremlin's umbrella company for his several Internet businesses, and hornswoggled InterNIC, the domain name registrar partly developed by Network Solutions, into giving him the sex.com domain.

When Kremen discovered the theft of his domain he contacted Network Solutions, thinking they'd quickly give the valuable dot-com back to its rightful registrar. No such luck. Company policy is to remain above the fray and let contenders battle it out, even, as in this case, when the motives and background of one of the parties clearly are under a black cloud.

The commercial potential of sex.com was harder to realize than you might imagine. Armed with his ill-gotten domain, Cohen initially used it to spearhead a campaign to create what one person involved termed "the Caesar's palace of brothels" in either Nevada or on a private island. His Fantasy Island, named Wanaleiya, never panned out, but the explosion of online porn sites did, and sex.com was at ground zero.

These days the site does an estimated $100 million a year. Although some of that comes from subscribers who kick down $25 a month to look at porn, the lion's share comes from other porn sites that pay up to a million a month for banner ads that will drive traffic to their less name-advantaged sites. No wonder Kremen is pissed.

Kremen sued both Network Solutions and Cohen under the theory that Cohen stole Kremen's property and that NSI were complicit in the theft because they refused to intervene. Judge Ware, however, saw things quite differently. Clearly, given those kinds of revenues, control of sex.com is a valuable asset. But in his summary motion to dismiss the suit against Network Solutions, Ware agreed that a domain registration is more like your phone number than, say, your car. If someone steals your car, you call the cops and get the person arrested. But if someone forges a letter to the phone company and steals your phone number, the phone company is only liable for giving you a replacement. Of course, there really is no replacing those lucrative nine letters, www.sex.com, but that's the theory.

Kremen was outraged, saying, "If you follow the logic here, it's open season for stealing domains."

Network Solutions CEO Jim Rutt called the ruling a clear win, saying, "[It] sharply defines the role of the registrar as a service provider, bound only to the terms of its service agreement."

Cohen isn't out of the woods yet. Kremen's lawsuit against the alleged dot-com grifter is pending in 2001. It's possible that if his lawyers can prove that Cohen actually forged the transfer letter he may prevail in having the high-grossing porn site domain transferred back and might even collect damages.

 

 

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