The Conversion of Sex.com

Gary Kremen first registered “sex.com” in 1994 with Network Solutions, the US “.com” domain name registrar. In those early days of the Internet, domain name registration was a relatively unsophisticated process with little regulation. It was a “first come, first served” arrangement. Mr Kremen did not initially develop a Web site corresponding to the domain name. In late 1995 Stephen Cohen, who had previously been convicted of bankruptcy fraud, fraudulently persuaded Network Solutions to transfer the domain name to him. He subsequently built up sex.com into a multi-million dollar business.

Mr Kremen started legal action against Mr Cohen in 1998 for the return of the now valuable domain name, claiming that Mr Cohen had “converted” his property. In 2000 he succeeded in obtaining a judgment from the US District Court for the Northern District of California returning the domain name to him, and awarding him $65 million in damages. Mr Cohen fled the jurisdiction without paying up and is believed to be in Mexico. Mr Kremen is therefore pursuing his claim for part at least of the damages against Network Solutions, which had appealed the decision. Faced with the novelty of the claim, the appeal court has now referred certain fundamental issues to the California Supreme Court for decision.

Unlike the many cases which have previously been heard in both the US and the UK about “cyber-squatting”, in which the main allegation has usually been that an interloper has improperly used the trade mark of a company or the name of a well known personality, Mr Kremen had to base his claim on the rights he had acquired merely by virtue of being the first to apply. Mr Kremen, of course, could not show that he owned a trade mark or the goodwill in a business, and so he had to go back to more basic arguments about the nature of a domain name itself. His case was therefore that on registration he had gained a property right, which had been “converted” by Mr Cohen.

The two basic legal hurdles he faces are whether a domain name can be said to be an item of property, and whether intangible property can be converted. The concept of “conversion” derives from English common law and has been traditionally applied only to the unlawful misappropriation of corporeal moveable property, ie “goods”. Both English law and the laws of the various US jurisdictions that follow the common law recognise intangible property such as copyright, patents and trade marks, but as yet no such recognition has been given here to a domain name.

Domain names are normally allocated by a registration agent in a particular country. Registration is accorded on the terms set by the registration body. These specify the procedure to be followed for the transfer of a domain name registration; the formal requirements can usually be accessed by looking at the Web site of the registration body. Nowadays, arrangements exist for resolving disputes over competing claims to a registration, and WIPO provides a Domain Name Dispute Resolution Service. However, despite the global nature of the Internet, there is no one body of law that transcends national rules.

From the viewpoint of English law, a domain name registration can be regarded as little more than the benefit of a contractual right between the registrant and the registration body. Once registered, a domain name has some of the features of an item of property, in that it belongs exclusively to one person and may be transferred. It is not the same thing as a trade mark registration, even though a person who registers or uses a domain name registration without justification may infringe a registered trademark and may also be guilty of “passing off”. In some ways, it is like a street address, which has long been recognised as being part of the goodwill of a business, although there is no copyright in a name or address as such. However, a domain name is not a fully fledged property right, because it is not recognised by statute, and it seems unlikely that the English courts would recognise it as a new common-law form of property.

The US courts appear more willing than their counterparts in the UK to bend traditional legal concepts to modern life. A series of judgments have acknowledged the concept of the “conversion” of personal property, and it appears to have been acknowledged that the right to use a domain name is a form of intangible personal property.

Does this matter in the great scheme of things? Recognising domain names as property would certainly make life at the same time easier and more complex for domain name registers and e-businesses. If the sex.com case had been brought in the UK, the legal arguments would perhaps have been different, possibly involving trust law and human rights. An English court might conceivably have held that the salacious nature of the subject matter made it unworthy of protection. Which is why it is probably time for the legislature, or preferably international organisations such as WIPO, to make it a priority to clarify the situation.

David Marchese is a Partner at the media law firm Davenport Lyons.