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Sex.com Battles On

Sex.com Battles On

January 23, 2003
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" 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.  "

Recently, Sex.Com announced pivotal results in the pending Court decision against VeriSign. This is a far-reaching case that could potentially impact all domain name owners, and cause the demise of the world’s largest domain registrar, and as such bears watching closely:

For those who are unfamiliar with the site, Sex.Com is the premium adult Internet search engine, receiving on average 150,000 - 200,000 unique users and 400,000+ page-views daily. With a majority of the traffic being type-in adult traffic; many visitors are first time surfers looking for specific adult content. Sex.com also distributes its search results and banners to over 25 other search engines internationally. The ‘owners’ have also been embroiled in a bitter lawsuit concerning the domain’s ownership that is defining new legal ground, and establishing a precedent that will affect future cases for years to come.

With signs pointing towards a win for Sex.Com, the Ninth U.S. Circuit of Appeals in San Francisco has asked the state Supreme Court, the final authority on California Law, to intervene and decide whether a domain name is property that can be converted as well as guidance to assess damages that might amount to $100 million.

Attorneys for Gary Kremen, founder and chief executive officer of Sex.Com, said the order, which recognizes domain names as a type of property, was a step toward victory in the case. The case involves Kremen, VeriSign, formerly Network Solutions, Inc. (NSI), and Stephen Cohen.

VeriSign unilaterally took the Sex.Com domain name from Kremen upon receiving a forged letter from Cohen, asking that Sex.Com be transferred into his name. Without verifying the authenticity of the letter, NSI obligingly transferred the Sex.Com domain name into Cohen’s name, in which he proceeded to build a multi-million international porn empire. Kremen produced definitive proof of the forgery and fraud, yet VeriSign refused to transfer back the registration to Kremen. Additionally, the U.S. Court of Appeals rejected fugitive Cohen’s appeal to the U.S. Court of Appeals for a rehearing on the underlying issue, leaving only the U.S. Supreme Court for recourse.

From the hearing in August 2002, when the U.S. Court of Appeals agreed to expedite oral arguments in Sex.Com’s appeal against NSI, Judge Alex Kozinski expressed his surprise at NSI’s disregard for an obvious forged letter. “I mean this is really sloppy,” said Kozinski to VeriSign’s attorneys.

Kremen holds NSI duly responsible for using inadequate safeguards to protect his property. NSI claims that a domain name isn’t property and thus, they are not responsible for the negligent transfer. During the hearing, the Judges seemed to cast doubts on VeriSign’s claims that it’s not responsible for turning the name over to Cohen without rudimentary authentication or verification.

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 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 NSI has liability.

Judge Kozinski wrote that the Ninth Circuit should have granted Kremen a victory in the case, based on this legal analysis of domain names and property law. He wondered how VeriSign’s DNS database of domain names was any different from a stock certificate, which he said connects an owner with some property. “Domain names, like corporate stock, are clear and discrete property rights. One who alters title to a registered domain name is fairly on notice that he may be affecting someone else’s property,” Kozinski wrote.

Calling the issue “a new and substantial issue of state law in an arena that will have broad application,” the three-judge panel deferred the question to the seven justices of the California Supreme Court.

The final ruling could leave an indelible mark in the world of Internet domain registrars. A California Supreme Court ruling in favor of Kremen could result in numerous lawsuits against domain registries, and, ultimately have the strongest impact on VeriSign, who could face a multimillion-dollar damage claim from Kremen. Kremen has been unable to collect most of the $65 million verdict from Cohen, but seeks to collect the balance from NSI for allowing the fraudulent transfer, said Kremen’s lawyer, James Wagstaffe.

With so much at stake, only one thing remains certain – we have not heard the end of this landmark property rights case…


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