Ninth Circuit Court Of Appeals Rules Against Verisign In Sex.com Case

by Glen Shapiro, LawAndTax-News.com, New York

29 July 2003

Gary Kremen, the rightful owner of the Sex.com domain has emerged victorious in a battle with Verisign Inc over negligence on the part of the firm's Network Solutions unit.

Kremen registered the domain in 1994, but did not develop it. Therefore, when Network Solutions received a forged letter from Stephen Cohen, alleging that Kremen's business, Online Classifieds, did not have an internet connection, it transferred ownership of the domain to Mr Cohen, who built it into a thriving internet pornography business.

A legal challenge by Kremen in April 2001 was successful, and Cohen was ordered to pay $65 million in compensation, and $25 million in punitive damages to the domain's rightful owner. However, Cohen fled the United States for Mexico soon after the trial, simultaneously siphoning the profits from Sex.com into an offshore account.

A suit brought by Kremen against Network Solutions was rejected by a federal district court, which argued that domain names are a form of intangible property, and are therefore not subject to the laws governing wrongful appropriation of another's property.

However, the Ninth Circuit Court of Appeals in San Francisco overturned this on Friday in a landmark ruling, which marks the first time that traditional property protections have been applied in this way, and could have far-reaching implications for domain name registrars.

In a written opinion, the three judge panel explained that:

'It was Network Solutions that gave away Kremen's property...It would not be unfair to hold Network Solutions responsible and force it to try to recoup its losses by chasing down Cohen. This, at any rate, is the logic of the common law, and we do not lightly discard it.'

Drawing attention to an example of the domain name registrar's negligence in this case, Judge Alex Kozinski - who ruled on the case with Judge M. Margaret McKeown and US District Judge James Fitzgerald - observed that:

'Despite the letter's transparent claim that a company called 'Online Classifieds' had no internet connection, Network Solutions made no effort to contact Kremen.'

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