Volume I

Issue : 3: August 7, 2003

• New York Man Settles Invasion of Privacy Claim For $325,000.00
• Passage of U.S. Drug Import Bill benefits Internet Pharmacies
• Appeals Court Allows Claim For Conversion against Domain Name Registrar In Sex.com Litigation
• RIM Loses Patent-Infringement Ruling
• Recording Telephone Calls Without Customer Consent Contravenes PIPEDA
• Privacy Commissioner Rules Against Call Display
• Class Action Filed Against DoubleClick Over Advertising Banners
• Study Reveals Similar Privacy Practices in the U.S. and U.K. Despite Lack of Legislation in U.S.
• Red Hat Sues SCO Group - SCO Group Announces License Fees for Linux Users
• Canadian Lawful Access Consultation Report Released
• Australian Court Grants Hearing for Leave to Appeal in Internet Defamation Suit

Home > Volume I > Issue 3: August 7, 2003 > Appeals Court Allows Claim For Conversion against Domain Name Registrar In Sex.com Litigation

Appeals Court Allows Claim For Conversion against Domain Name Registrar In Sex.com Litigation

In a significant court decision, the Ninth Circuit Court of Appeals ruled that Gary Kremen, the initial owner of the domain name "sex.com", was allowed to sue the registrar for that domain name, Network Solutions, for mistakenly transferring the domain name to fraud artist Stephen Cohen on the basis that Kremen had a property right to the stolen domain and that Network Solutions was potentially liable for the mistaken transfer. Writing for a three-judge panel, Circuit Judge Kozlinski held that the property law tort of conversion clearly applies to Internet domain names.

Kremen had initially registered the "sex.com" domain name with Network Solutions in 1994. However, Cohen later sent Network Solutions a fake letter stating that the domain name was to be abandoned by Kremen's company, making it available for purchase by him. Despite obvious discrepancies in the letter, Network Solutions made no effort to contact Kremen, accepted the letter at face value and transferred the name to Cohen. When Kremen contacted Network Solutions to report the fraud, he was told it was too late to undo the transfer. Cohen subsequently became wealthy using the domain name after turning sex.com into a lucrative online porn empire.

Kremen won a significant judgment against Cohen in federal court but was unable to collect a substantial portion of the award because Cohen fled U.S. jurisdiction. Kremen then sued Network Solutions for mishandling his domain name on the basis of several legal theories. The district court granted summary judgment in favour of Network Solutions on all claims. In the appeal, the Court of Appeals upheld the prior court's dismissal of the breach of contract, breach of third party contract and conversion by bailee claims, but did consider Kremen's claim of conversion. To establish that tort, a plaintiff must show "ownership or right to possession of property, wrongful disposition of the property right and damages." The Appeals Court confirmed that registrants have property rights in their domain names (citing the three part test described in G.S. Rasmussen, 958 F. 2d at 903), since such property is an interest capable of precise definition; is capable of exclusive possession or control and the putative owner did establish a legitimate claim to exclusivity.

The district court had previously rejected Kremen's conversion claim on the basis that domain names, although a form of property, are intangibles not subject to conversion. The Appeals Court noted that this rationale derived from a distinction tort law once drew between tangible and intangible property as conversion was originally a remedy for the wrongful taking of another's lost goods, so it applied only to tangible property.

On the facts, the Appeals Court found the Domain Name System ("DNS") to be a document (or collection of documents) stored electronically, rather than on ink and paper. The Appeals Court then rejected Network Solutions' argument that since the components of the domain name were stored in different places and different machines, it was not an intangible susceptible to conversion because it wasn't a single document-the Court analogised that stock shares, for example, are no less intangible property because they are evidenced by more than one document. The Appeals Court also rejected Network Solutions' claim that the DNS is not a document because it is "refreshed" every 12 hours when updated domain name information is broadcast over the Internet, noting that a document does not "cease being a document because it is often updated" (if that were the case, a share registry would fail whenever shareholders were periodically added or dropped).

Accordingly, the Appeals Court found that in applying settled principles of conversion law to what the parties and the district court agreed is a species of property, Kremen's domain name is protected by California conversion law, thus exposing Network Solutions to liability when it gave away his domain name on the basis of a forged letter.

For a copy of this decision (Court of Appeals), visit:

http://caselaw.lp.findlaw.com/data2/circs/9th/0115899p.pdf