CLICKS
OR MORTAR: Are Domain Names
Property?
by
- Ellen
Rony
-
- Copyright
© February 27, 2000 Ellen Rony. All rights
reserved.
Initially published by Domain
Notes,
February 2000
- Four
or five united would be able to raise a tolerable
dwelling in the midst of a
wilderness.
- -
Thomas Paine, Common Sense (February 14,
1776)
-
What
are your long term plans for your domain name? Do you
expect to convey the name and the goodwill associated
with it to an interested buyer or bequeath it your heirs?
Perhaps you intend to use the domain name to secure a
loan1
for a business expansion or for your child's college
tuition. You may be in for a surprise.
Network
Solutions, Inc., the .COM, .NET and .ORG registrar, is a
spoiler of such practical plans. A prohibition roosts
near the end of NSI's new Service
Agreement3:
23.
NON-ASSIGNMENT. Your rights under this Agreement are
not assignable. Any attempt by you to
assign2
your rights shall render this Agreement voidable at
our option. Any attempt by your creditors to obtain an
interest in your rights under this Agreement, whether
by attachment, garnishment or otherwise, shall render
this Agreement voidable at our option.
In
order to register any dot-com name with NSI, you must
agree to this and 24 other terms and conditions set forth
in the Service Agreement. No matter how large your
investment in the domain name or how tenacious your
effort to promote the moniker, NSI compels you to waive
your personal right to assign the name. Posted in
January, the Service Agreement is the registrar's latest
attempt to inhibit the rules of property law from
applying to domain names.
Feudal
Foundation
NSI's
approach has a distinctly feudal feel to it. Centuries
ago, in order to govern their vast realms, kings awarded
land grants to nobles in return for their homage, fealty
and military support. Those lords also controlled large
tracts, known as the "demesne" (from which the
word "domain" is derived), so they, in turn, allowed
vassals to live and work on the land in exchange for
safety and protection. The feudal system bound vassal to
lord and lord to king, but ownership title did not pass
to those who actually cultivated the land and enhanced
its value.
NSI,
the primary registrar among 110 accredited by the
Internet Corporation for Assigned Names and Numbers,
presents itself as the strict overlord, allowing .COM,
.NET and .ORG domain registrants to develop the virtual
landscape while denying them permanent use and rights of
reassignment. In NSI's view, a domain name registration
conveys not an absolute right but one that is conditional
upon the registrar's sole discretion. The dictim
disregards both the natural expectations of most
registrants and the indicia of property.
The
legal touchstone of "property" is the exclusive
right to control how and by whom a particular thing may
be used. If a domain name is property, a bundle of rights
accrue, including the right to use, convey, develop,
exclude, bequeath, profit from, assign and dispose of,
with or without consideration.4
If this pivotal part of online technology is property,
the contractual rights associated with its use do not
vanish when you divorce, die or distribute your business
assets. When property is susceptible to monetary
evaluation, it forms part of the owner's patrimony.
In
judicial pleadings and academic essays, the domain name
has been likened to an address, alias, brand, directory,
handle, patent, trademark, telephone number, and even a
cow.5
More than a mnemonic locator, it gets the Internet user
to a specific web site, may hint at what is found there,
provides connections between a brick-and-mortar business
and its goods or online services, delivers a message,
makes a promise, conveys a personality, publicizes an
event, or tells a story.
But
is a domain name property?
The
intellectual property community asserts that domain
names, as source indicators, are akin to trademarks.
However, trademark law cannot be effectively grafted on
to domain names because of the discrepancies over
geographical boundaries and context-sensitive use. In
order for a trademark registration to issue, the mark
must be used in interstate commerce to identify the
source of a class of goods or services. Identical
trademarks can co-exist so long as they are associated
with non-competing types of goods or services or are used
in different geographic areas.
Domain
names are registered on a first-come, first-served basis.
The first individual or company to complete the
registration template for an available name gets the sole
right to be associated with it. For a reasonable fee,
currently hovering at $35 a year, the registrant can
brand and propagate the name in a worldwide marketplace.
The registrant receives the exclusive right to use that
name for a website presence, global e-mail, and network
file transfers.
But
every domain name must be unique, and it is this
technical requirement that makes domain names potentially
valuable resources which are substantively different from
trademarks. Compaq Computer Corp paid $3.35 million in
July 1998 for rights to ALTAVISTA.COM, purchased from a
California start-up called Alta Vista Technology. The
transaction included existing traffic of a half million
visitors a day who were already expecting to find the
Alta Vista search engine at that domain name.
Many
domain names have become the cornerstone of
multimillion-dollar business plans. In the fall of 1999,
VirtualVineyard of Palo Alto, California, acquired
Wine.Com of Napa, primarily for its domain name. While
the $3.3M-plus acquisition included an operating
business, the CEO of Wine.Com estimated that about 70
percent of his company's value was its
name.6
Unlike
trademarks, a domain name can have value irrespective of
its functionality as a locator for a particular computer
or identifier of a specific commercial supplier. Short,
recognizable and memorable names domain names now command
million dollar sums in a brisk resale market. In April of
1999, DRUGS.COM sold at auction for $823,456 and
WALLSTREET.COM attracted a cool $1.03M. Shortly
afterward, COMPUTER.COM sold for $1M in cash, securities,
and other consideration without any content or branding
associated with the domain name. BUSINESS.COM sold in
1997 for $150,000 and only two years later fetched a
staggering $7.5 million.
In
Rem Litigation
Several
lawsuits have addressed the nature of domain names as
property. In 1996, NSI attempted to avail itself of a
legal approach, the interpleader, which is only available
with respect to property. An interpleader may be filed
when two parties are involved in a lawsuit over the right
to collect a debt from a third party, who admits the debt
is owed but does not know which person to pay. In Clue
Computing v. Hasbro,Inc. and NSI, the registrar filed
a Complaint for Interpleader which said, "Network
Solutions, as an impartial and unbiased stakeholder, has
no interest in the property in dispute and is prepared to
assign the registration and use of the 'CLUE.COM' domain
name as determined by the Court."7
The "property in dispute" was, of course, the CLUE.COM
domain name registration.
In
Porsche Cars North America, Inc. et al v. Porsch,net,
et. al.,8
the auto distributor initiated litigation against the
"property-in-issue" -- 128 domain names -- for dilution
of its famous marks. Rather than serving a summons upon
the many individual registrants of domain names
incorporating Porsche's marks or similar words, Porsche
brought an in rem lawsuit in Virginia, the
judicial district where the registrations are
administered.
In
rem, an adjective from Latin meaning "against or
about a thing," refers to a lawsuit or other legal action
directed toward property, rather than toward a
particular person (called in
personam).9
Because many of the registrants could not be found,
Porsche filed the proceeding in rem, or against
title to the property. The location of the property
determines which court has jurisdiction, and enforcement
of a judgment must be upon the res, or property; it does
not follow a person.
To
facilitate the proceeding, NSI surrendered the identified
domain name registrations, i.e., the "property", to the
district court. However, Porsche's petition for
injunctive relief and cancellation of the domain names
registrations was dismissed. The court held that the U.S.
Trademark Dilution Act, under which the suit was
initiated, did not permit in rem proceedings, but
it issued no opinion on whether domain names are
property.
A
different facet of property rights in domain names was
addressed by Umbro International, Inc. v. 3263851
Canada Inc.10
Here, a Virginia court opined that a domain name
registration represents property subject to garnishment
and judicial sale under Virginia law. The owner of the
Canadian company that registered the UMBRO.COM domain
name attempted to sell it to Umbro International for
$100,000--cash plus charitable donation--and a lifetime
supply of Umbro athletic gear. Instead, Umbro sued for
trademark infringement and dilution in federal court in
South Carolina. When the domain name registrant failed to
respond to the lawsuit, the court entered a default
judgment in favor of Umbro, including $23,489.98 to cover
attorney fees and costs.11
Because
the defendant had no property in the United States, Umbro
filed a garnishment proceeding in Virginia state court
against Network Solutions, to force the judicial sale of
the defendant's 27 domain names. Garnishment is the
process by which a judgment creditor, in this case Umbro,
enforces the lien of his execution against any debt or
property due his judgment debtor in the hands of a third
person, the garnishee. Although NSI balked and tendered
arguments why domain names cannot be subject to
garnishment, the Circuit Court of Fairfax County,
Virginia, held that domain names are property and thus
can be disposed of by judicial sale to satisfy a judgment
lien against a domain name registrant.
Judge
M. Langhorne Keith wrote in his letter Opinion in
Umbro, "There can be little question that
domain names are a form of intellectual property. Domain
names can receive trademark protection from the Patent
Office. . . . The fact that this form of intellectual
property results from a service that NSI provides does
not (as NSI argues) preclude the property from
garnishment any more than the service provided by the
Patent Office in issuing a patent immunizes patents from
garnishment."14
The
court ordered NSI, the garnishee, to deliver the domain
names to the court for judicial sale to the highest
bidder. NSI has filed an appeal of this decision.
A
Legal Thicket
On
November 29, 1999, President Clinton signed into law the
controversial Trademark Cyberpiracy Act, which allows an
in rem action in a domain name dispute when an
in personam jurisdiction is unavailable. The U.S.
law reads, in pertinent part,
(2)(A)
The owner of a mark may file an in rem civil action
against a domain name in the judicial district in
which the domain name registrar, domain name registry,
or other domain name authority that registered or
assigned the domain name is
located....15
The
Trademark Cyberpiracy Act and the seminal opinion in the
Umbro litigation both reinforce the notion that a
domain name is a form of property that can be subject to
an in rem action or seized to satisfy an
outstanding judgment at the request of a judgment
creditor.16
Other courts may hold different opinions,17
but pressure from mergers, acquisitions, auctions,
dispute settlements, marriage dissolutions, and estate
liquidations may forge a new system of property rights in
domain names. In rem litigation is a powerful tool
for trademark owners who have been unable to obtain
jurisdiction over bad faith registrants whose whereabouts
are unknown. Under the Trademark Cyberpiracy Act, the
property of an in rem defendant can be in the
judicial district where the domain name registrar,
registry, or other domain name authority is located. Even
.COM registrants who reside outside the United States can
be brought to court in Herndon, Virginia, the domicile of
the .COM, .NET and .ORG registry. But domain name
registrants may also find a boon in a new system of
rights that allows them to challenge a registrar's
wrongful acts, which may be considered a "taking" of
their property,
The
current controversies over domain names highlight the
interplay of technology, law, economics and politics.
Court opinions trail society's changes and conundrums
resulting from technology of recent vintage. Yet, nearly
everyone agrees on one point: domain names are caught in
a legal thicket. If domain names are property, then
existing contracts such as NSI's harsh Service Agreement
must be rewritten. Although the implications of the
Umbro decision are yet to be fully assessed, and
NSI's appeal remains to be heard, the magistrate
recognized that each knotty domain name dispute before
the court may be breaking new legal ground. His words
shed philosophical light on the tentative kinship between
clicks and mortar:
The
problem of shaping the new to the old, of reconciling
the dual demands of stability and change, is surely
congenial to legally trained minds. Just as our
profession combines the theoretical and practical so
also it furnishes insights into the perennial push of
new demands pressing upon older interests. "History,"
to use Paul Freund's arresting phrase, "is itself a
tension between heritage and heresy which law in its
groping way seeks to mediate."18
Fortunes
are being built upon $70 domain names. While writing this
article, online news reported that LOANS.COM sold at
auction for $3 million.
As
the price bar for domain names rises, NSI's customers may
resist being subject to the vagaries of the registrar's
feudal regime. Simple and unencumbered ownership endows
the registrant with a type of predictable, if limited,
sovereignity. Through legislation and judicial
acknowledgment, registrants who meet certain individual
responsibilities should be allowed a perpetually
renewable and assignable right to enjoy this new source
of wealth.
ENDNOTES
1.
The Industrial Bank of Korea is offering "mortgages" on
Internet domain names, blurring the distinction between
actual and virtual real estate. See "'Mortgages' for
domain names," BBC News (November 23, 1999) at
http://news.bbc.co.uk/hi/english/sci/tech/newsid_533000/533455.stm
2.
assign: 1) v. to transfer to another person any
asset such as real property or a valuable right such as a
contract or promissory note. 2) n. the person (assignee)
who receives a piece of property by purchase, gift or by
will. The word often shows up in contracts and wills.
From Gerald and Kathleen Hill, The Real Life Dictionary
of the Law at http://dictionary.law.com/lookup.asp
3.
NSI Service Agreement Version 6.0, (1/00) at
http://www.networksolutions.com/legal/service-agreement.html
4.
property, n, 1. Something owned; a possession; a
piece of real estate; something tangible or intangible to
which its owner has legal title: properties such as
copyrights and trademarks. Possessions considered as a
group. 2.The right of ownership; title. 3. An article,
except costumes and scenery, that appears on the stage or
on screen during a dramatic performance. 4. a.A
characteristic trait or peculiarity, especially one
serving to define or describe its possessor. b.A
characteristic attribute possessed by all members of a
class. 5.A special capability or power; a virtue: a
medicine with special properties. [Middle English
from Old French propriete, from Latin propriets,
ownership (translation of Greek idiots); see idiot from
proprius, one's own; see per1 in Indo-European
Roots.] Source: The American Heritage¨
Dictionary of the English Language, Third Edition at
http://www.dictionary.com
5.
See Carl Oppedahl, "Remedies in Domain Lawsuits: How is a
Domain Name Like a Cow?" 15 John Marshall Journal of
Computer & Information Law 437 (1997), draft posted
at http://www.patents.com/pubs/jmls.sht
6.
Peter Sinton, "Virtual Vineyard Swallows UpWine.com," San
Francisco Chronicle (September 14, 1999) at
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/1999/09/14/BU39238.DTL
7.
Complaint for Interpleader Pursuant to 28 U.S.C. ¤
1335, Network Solutions, Inc. v. Clue Computing, Inc. et.
al., 96 D 1530, D. Colorado (June 21, 1996) ; Order of
Dismissal (October 29, 1996) at http://www.bna.com/e-law/cases/cluecomp.html
8.
Porsche Cars North America v. Porsch.Net, et. al.,
Memorandum Opinion, CV 99-0006-A, Eastern District of
Virginia (June 16, 1999) at http://www.bna.com/e-law/cases/porsche.html
9.
in personam adj. from Latin for "directed toward a
particular person." In personam is distinguished from in
rem, which applies to property or "all the world" instead
of a specific person. This technical distinction is
important to determine where to file a lawsuit and how to
serve a defendant. In personam means that a judgment can
be enforceable against the person wherever he/she is.
However, if the lawsuit is to determine title to property
(in rem) then the action must be filed where the property
exists and is only enforceable there. Hill, The Real Life
Dictionary of the Law - http://dictionary.law.com/.
10.
Umbro International, Inc. v. 3263851 Canada Inc.,
Letter Opinion, No. 174388 (Va. Cir. Ct. Fairfax Cty.
(Feb. 3, 1999) at http://www.alston.com/docs/Articles/199709/umbrodns.htm
11.
Umbro, op. cit.
12.
Garnishment is a proceeding which exists only by virtue
of statutory enactment. Under statutes, [Va. Code
Ann. ¤ 8.01-511, et seq.], garnishment is the
process by which a judgment creditor enforces the lien of
his execution against any debt or property due his
judgment debtor in the hands of a third person,
garnishee. See http://www.alston.com/docs/Articles/199709/umbrodns.htm.
In Virginia, on motion of a judgment creditor, the clerk
of the court issues a writ of fieri facias, which orders
an appropriate officer to satisfy the judgment out of the
judgment debtor's personal property. Va. Code
¤¤8.01-466 et seq; id. ¤8.01-501 et .seq.
13.
NSI argued, unsuccessfully, that a garnishment proceeding
cannot extend to domain names because the contract rights
set forth on the Registration Agreement are dependent on
unperformed conditions. NSI also claimed that the
contract right to the performance of a service is not
garnishable because, among other things, it would force
NSI "to perform services for those with whom it may not
desire to do business." However, NSI does not vet its
registrants nor does it monitor how registrants use the
domain names they register. Umbro, op.
cit.
14.
McClaskey v. Harbison-Walker Ref. Co., 138 F.2d
493 (3d Cir. 1943); see Cherie L. Lieurance, Judgment
Creditors' Access to Intellectual Property Rights
&endash; Is Simple Execution i n Sight?, 7 Whittier L.
Rev. 375 (1985) - Cited in Umbro, op. cit.
15.
S.1948 - Title III, Trademark Cyberpiracy Prevention Act
(November 29, 1999). Reproduced at http://www.domainhandbook.com/comp-squatpol.html
16.
"A domain name with significant value on the open market
certainly would be an attractive, arguably appropriate
target for a judgment creditor seeking to satisfy a
judgment from a wayward debtor." From Rose Marie Dorer
and Forrms, Inc. v. Brian Arel, Memorandum Opinion, No.
Civ.A. 98-266-A, 1999 WL 691677 (E.D. Va., Aug. 26, 1999)
at
http://www.bna.com/e-law/cases/dorer.html
17.
Lockheed Martin Corp. v. Network Solutions, Inc.,
et. al., CV 96-7438 DDP (ANx), (985 F. Supp. at 964-68)
Order Granting Defendant's Motion for Summary Judgment
(November 17, 1997) at http://zeus.bna.com/e-law/cases/locknsi.html
18.
Umbro, op. cit. Also reference Daniel J.
Meador, ed., Hardy Cross Dillard, Writing and Speeches 41
(1995)
