By:  Richard L. Ravin, Esq.*
 

By now, Internet practitioners are well aware of the importance of making sure that their clients, and not the Web site developers, "own" their domain names. But, is a domain name intellectual property or intangible property which is capable of being owned? The answer may depend on the selection of the domain name registrar (e.g. Network Solutions, Inc. (NSI)) and the jurisdiction in which the registrar resides. The issue has implications far beyond the control and administration of the Web site from a technical standpoint.
 

Value of a Domain Name
In the recent go-go days of IPO's and equity funding of "dot com" companies, much value was placed on the domain name as an asset or intellectual property. However, one recent case indicates that those values may have been misplaced. If the domain name is not owned by the company, then, (i) it is not an asset of the company and should not be valued as such, (ii) if the assets of the business are sold, the domain name will not be among the assets transferred, (iii) the seller of the business cannot rely on the domain name serving as collateral for the buyer's obligations, (iv) lenders will not accept a domain name as collateral for a loan, (v) in the event of liquidation, the domain name cannot be sold.

In the event of a Chapter 11 (reorganization) bankruptcy, if the domain name is not considered property, then actions concerning the domain name may not be subject to the automatic stay of 11.U.S.C. Sec. 362. If the domain name registration agreement is deemed an executory contract by the bankruptcy court (and not a personal services contract), then 11 U.S.C. Sec. 365 will control, requiring the debtor to either assume the contract by curing all pre- and post-petition defaults and providing adequate assurance of future performance, or rejecting the contract.

NSI Controlled by Virginia Law
There are dozens of Internet domain name registrars from which to choose, in as many national and international jurisdictions. NSI, the first and most popular registrar for the .com, .net and .org top level domains (TLD's), is located in Virginia. Hence, issues relating to rights and interest in domain names registered with NSI are controlled by Virginia law. Such was the case in NSI v. Umbro. 1In that case, a judgement creditor sued NSI as garnishee in attempt to levy on its judgment debtor's domain names, registered with NSI. The garnishment procedure is used in Virginia as a way to effect a levy on a "liability" or property due from a third party to a judgment debtor.

The Virginia Supreme Court reversed the lower court's decision, which held that domain names were garnishable. The supreme court held that the domain name is not subject to garnishment because the registrant of the domain name only gets rights in a service agreement, not the domain name itself. The court held:

Irrespective of how a domain name is classified, we agree with Umbro that a domain name registrant acquires the contractual right to use a unique domain name for a specified period of time. However, that contractual right is inextricably bound to the domain name services that NSI provides. In other words, whatever contractual rights the judgment debtor has in the domain names at issue in this appeal, those rights do not exist separate and apart from NSI's services that make the domain names operational Internet addresses. Therefore, we conclude that a domain name registration is the product of a contract for services between the registrar and registrant. 2
 

The Dissent
While the Umbro decision does not expressly hold that domain names are not property, that is the implication. This analysis drew criticism from the two dissenting justices. The minority opinion stated that the judgment debtor, by virtue of the domain name registration agreements with NSI, had a current possessory interest in the use of the domain names, that is, a contractual right to the exclusive use of the names it had registered with NSI. 3

The dissenting opinion states that this right exists separate and apart from NSI's various services that make the domain names operational Internet addresses. The dissenting justices opined that the domain name is intangible personal property, subject to garnishment. 4

The dissenting opinion is consistent with the Anticybersquatting Consumer Protection Act's 5 in rem provisions, in that Congress apparently considered a domain name to be a res of some kind, otherwise, there could be no in rem jurisdiction. The majority opinion in Umbro rejected this argument, saying that the language of the Act does not address the relationship between an operational Internet domain name and its attendant services provided by a registrar. 6

It is important to note that no mention was made in either the majority or minority opinions that a domain name registrant can freely transfer the registration of the domain name from one registrar to another. In reality, domain names are portable and are simply not inextricably bound to one particular registrar. This is further evidence, consistent with the minority opinion, that registration of a domain name gives one the exclusive right to use that domain name, independent of any services a particular registrar may provide. Perhaps the reason this fact was omitted was that until recently, NSI had exclusive registration rights with respect to .com, .net, and .org TLD's. The case began prior to NSI having competition in the registrar market, and presumably, prior to the ability of the domain name registrant to change registrars.
 

Terms of Service
It is also worth noting that NSI has recently changed its terms of service (TOS) agreement with respect to the registrant's rights of assignment. Earlier in the year, version 5.0 of the TOS read:

[Para. 23] NON-ASSIGNMENT. Your rights under this Agreement are not assignable. Any attempt by you to assign 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. (Emphasis added.)

Although it was NSI's practice to transfer domain names upon request, a literal reading of the TOS version 5.0 gave the registrant no right to assign the domain name. Currently, NSI's TOS version 5.1 has made a significant change, expressly permitting transfer of the domain name registration (to another registrant):

[Para. 23] TRANSFER AND ASSIGNMENT. You may transfer your domain name registration to a third party of your choice, subject to the procedures and conditions found at: http://www.network solutions.com/makechanges/rnca/agreement.html, incorporated herein by reference. Your rights under this Agreement are not assignable and any attempt by your creditors to obtain an interest in your rights under this Agreement, whether by attachment, levy, garnishment or otherwise, renders this Agreement voidable at our option.

With this modification of NSI's TOS, parties can now enter into agreements for the transfer of the domain name registration consistent with the rights NSI has conferred on its registrants. This change occurred after the Umbro decision was rendered.

NSI provides that the TOS can be changed at any time without notice
(except that NSI will post the changes on its Web site). In its prior version 5.0, NSI's TOS stated that it could terminate its service (and the domain name registration) in the event the registrant used such service for any improper purpose, as determined in NSI's sole discretion. This provision has since been eliminated in TOS version 5.1.
 

Terms of Registrars
It is important to read a registrar's TOS carefully when selecting a domain name service provider, or when performing due diligence in connection with the sale of a business, or lending to a "dot com" business, or collecting on a judgment against a company using a domain name. If the current domain name registrar has unfavorable terms, the registrant can change registrars for a particular domain name. This may be advisable in such cases where the parties are looking for more robust rights in the domain name than available with the current registrar.

For instance, Gandi.net is an Internet domain name registration service located in Paris, France which expressly provides that the registrant "owns" the domain name. There is a useful online service called www.domainnamebuyersguide.com that rates the various Internet domain name registrars. The service rates Gandi.net with five stars (the highest rating) in the "Legal Ranking" category. Among the provisions set forth on gandi.net (at http://www.gandi.net/
faq.html.en visited on October 30, 2000) is the acknowledgment that the registrant "owns" the domain name provided registration fees are paid. The TOS for Gandi.net also provides that the registrant can change registrars at any time without any additional cost.

Another case bearing on the issue of whether a domain name qualifies as property is Kremen v. Cohen. 7 The case is interesting for three reasons: First, it was a dispute over who was master of the domain "sex.com". Plaintiff had alleged that the defendant had forged documents submitted to NSI pertaining to the transfer of the domain name to defendant.

Second, among other things, plaintiff alleged conversion of property. The Umbro court held that the domain name was intangible personal property. 8 The tort of conversion requires something tangible to facilitate the wrongful act of disposing of property. However, the court found that a domain name was not the type of intangible personal property that was associated with documents of title. Thus, the court granted summary judgment, dismissing the conversion claims. 9

Third, the court rejected the rationale of the Virginia Supreme Court in Umbro, and cited favorably the dissent, stating that the right to use domain names exists separate and apart from NSI's various services that make the domain names operational Internet addresses. These services are merely conditions subsequent, the court held. 10
 

Conclusion
It will be interesting to see how other courts around the country, indeed, around the world, will weigh-in on the issue of domain name ownership. The decisions will depend on the law of the jurisdictions in which the registrars are located and the terms of service agreements of the particular registrars, especially the provisions on ownership and assignability. Perhaps adducing proof as to the portability of domain names as between registrars, combined with the new express transfer provisions of NSI's TOS (version 5.1) will lead the next court to hold that domain names are a new form of intellectual property, capable of being "owned".

*Richard L. Ravin is a member of Hartman & Winnicki, P.C. and is head of his firm's E-Commerce and Intellectual Property Law Group, with offices in New York and New Jersey. He is Co-Chair of the Internet Law Committee of the New York State Bar Association, Intellectual Property Law Section. His e-mail address is Rick@Ravin.com. © 2000 Richard L. Ravin
 

1. NSI v Umbro, 259 Va. 759 (2000).
2. 259 Va. at 770.
3. 259 Va. at 774.
4. Id.
5. 15 U.S.C. Section 43(d) et seq.
6. 259 Va. at 770, n. 12.
7. Kremen v Cohen, 99 F. Supp.2d 1168 (N.D.Ca. 2000).
8. 99 F. Supp.2d at 1173.
9. 99 F. Supp.2d at 1174.
10. 99 F. Supp.2d at 1173.