Bizarre history of sex.com
Sex.com was originally registered by Gary Kremen of San Francisco in 1994. At that time there was no charge for registering a domain name. The following year, Stephen Cohen, fresh out of prison for a crime of impersonating a bankruptcy lawyer, took the name from Kremen by sending a forged letter of transfer to Network Solutions (which subsequently became part of VeriSign).
Cohen then ran a highly profitable porn portal – reputedly taking monthly revenues of $500,000 – until November 2000 when a court awarded Kremen the return of the domain name, having found that the forged signature on the letter to Network Solutions misspelled the name of the purported signatory.
A Californian district court ordered Cohen to pay the sum of $65 million in damages to Kremen. Cohen has to date paid nothing and failed to appear at several court hearings.
Instead, Kremen has acquired only Cohen's former mansion in Santa Fe, California, supporting himself on his share of Sex.com's monthly revenues – down to a mere $300,000 in today's tougher advertising market. Despite Kremen offering a $50,000 bounty for the capture of Cohen, the ex-convict has never been caught, and was last seen in Tijuana, Mexico.
Kremen then sought to recover damages from the registrar for the unauthorised transfer. His case was initially dismissed by the District Court, but on Friday he enjoyed a triumphant appeal court ruling over a crucial legal point.
Friday's ruling
Kremen had argued in court that Network Solutions was liable for breach of an implied contract. But in US law, as in English law, some consideration is a necessary part of a contract and, because Kremen's registration in 1994 was free, the court agreed with Network Solutions that he could not claim breach of contract. (Incidentally, this is not true of Scots law, where no consideration is necessary to form a contract.)
But Kremen had another argument: that Network Solutions had committed a legal wrong known as "conversion" under US property law – which requires showing "ownership or right to possession of property, wrongful disposition of the property right and damages."
Network Solutions had successfully argued in a lower court that the domain name was intangible property "to which the tort of conversion does not apply." But this was where the US Court of Appeals for the 9th Circuit disagreed: domain names, it reasoned, are a type of intangible property to which the tort of conversion can apply.
In Friday's ruling, Judge Alex Kozinski wrote:
"Exposing Network Solutions to liability when it gives away a registrant's domain name on the basis of a forged letter is no different from holding a corporation liable when it gives away someone's shares under the same circumstances."
He continued:
"Negligent or not, it was Network Solutions that gave away Kremen's property. Kremen never did anything. It would not be unfair to hold Network Solutions responsible and force it to try to recoup its losses by chasing down Cohen."
James Wagstaffe, attorney for Kremen, told Reuters, "It is the first time a court has applied traditional property protections to a domain name."
The court also acknowledged arguments from the registrar that the threat of litigation threatens to stifle the domain name registration system, potentially raising fees for customers. But Judge Kozinski reasoned that this is a fair price to pay to avoid mistakes like the transfer of sex.com.
The wider significance of the ruling is not yet clear. All domain names are today registered and renewed on payment of a fee and are subject to a contract which, in the US, will usually prohibit legal action by registrants. Further, contract law does not support punitive damages, unlike the tort of conversion – and a lower court must now decide whether Network Solutions is liable for the punitive damages that Cohen has failed to pay. If so, Kremen could enjoy a further $25 million.
The opinion is available here
