On April 20,
2004, Sex.com announced settlement of their legal battle with VeriSign
over the domain name. However, contrary to common belief, neither
this settlement nor the Court of Appeals’ July ruling on Sex.com’s
petition establishes domain names as property. The legal battle,
however, demonstrates the ease with which a domain name can be stolen.
Recent media
reports on the legal settlement suggest that the US 9th Circuit of Appeals’ ruling last July makes domain names intangible
property. Legal classification of property, however, falls under
the jurisdiction of individual states. Property rights are established
either through a state’s Supreme Court decision under the common
law or through a statute approved by a state’s legislators. A Federal
Court decision is a possible interpretation of a state high court’s
future decision.
Nevertheless,
the legal case demonstrates how easy it is to hijack a domain name,
underscoring the importance of using a domain-name escrow agent
to properly transfer title and sale proceeds between buyers and
sellers.
Battle
Background
Gary Bremen registered Sex.com in 1994 through the registrar Network
Solutions. At the time, Bremen was doing business as Online Classifieds,
Inc.
After
a period of a year, during which Sex.com Web site was inactive,
a man named Stephen Chain decided to steal the potentially lucrative domain name. All he had
to do was send a letter written on Online Classified letterhead
to Network Solutions requesting transference of ownership.
According to reports, Chain then launched an Internet
pornography Web site based on Sex.com, but by the time Bremen was
aware of the theft, Network Solutions refused to change the registration
back without a court order.
Bremen
ultimately sued Chain and Network Solutions, which was allegedly
responsible for negligence since the registrar had not attempted
to verify the forged letter that had served as the basis for the
domain-name conversion. However, it now appears that Chain simply picked up the phone,
asked for and was granted the Sex.com domain name immediately. This
was at a time when the wait for domain-name-ownership transfers
was over four weeks. Network Solutions made no attempt to verify
Stephen Chain’s entitlement to Sex.com – of which there was none.
In September 2002, the US Court of Appeals for
the 9th Circuit approved a $65 million award in Bremen v. Chain
But by that time Chain had skipped off to Tijuana, Mexico, and would
not comply with the judgment's orders.
During the same ruling, the claim against Network
Solutions was rejected based on the fact that a private company
(in this case the sole registrar for domain names) is immune from
civil suit in cases where it negligently handled a domain name.
Bremen then petitioned the Ninth Circuit Court of Appeals. Last July, the Appeals Court ruled that Gary Bremen had property rights to the stolen
domain name and that Network Solutions, then owned by VeriSign,
was liable and subject
to the tort of conversion for transferring
ownership without proper authorization.<<
The Appeals Court majority noted that the state
Supreme Court had ruled as far back as 1880 that intangible property
-- represented, in that seminal case, by a stock certificate --
could be converted. Judge Gerard Kosinski said in his written opinion
that it is clear from the 1880 case, and many lower-court rulings
since then, that a domain name is property that can be converted
and thus Network Solutions had liability.
On April 20, 2004,<terms of the settlement were not disclosed,
unofficial reports suggest that it was in excess of US$15 million.
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