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April 04, 2001 11:35am
Judge Awards $65 Million in sex.com Cybersquatting Case
Source: Reuters
by: Andrew Quinn

(SAN FRANCISCO, CA) -- A federal judge has awarded $65 million to an entrepreneur whose Internet domain name ``sex.com'' was usurped by an online pornographer, marking the largest verdict ever in a cyber-squatting case.

U.S. District Judge James Ware found Stephen Cohen liable for fraud and forgery in the five-year battle over sex.com, hitting him for $40 million in compensation for lost profits and an additional $25 million in punitive damages.

Ware's order, handed down late Tuesday, also ordered that a warrant issued for Cohen's arrest remain in effect until he surrenders all of his property to the court.

Cohen, who has previously served time in federal prison for bankruptcy fraud and impersonating an attorney, lives in Tijuana, Mexico, and has shielded his multimillion dollar fortune stashing it in offshore accounts, lawyers said.

The judge's award nevertheless marked a victory for Gary Kremen, the San Francisco entrepreneur who had the foresight to register the (http://www.sex.com) address in 1994, at the dawn of the Internet age.

Kremen, who was given control over the Web site last November, has said he intends to cut the amount of outright pornography it offers and ``transition the site to more mainstream content.''

Kremen's attorney, James Wagstaffe, said the size of the order showed that ``the Internet is not a lawless wasteland.''

``If you take someone else's property, you simply have to give it back, no matter what kind of property it is,'' Wagstaffe said in a statement.

Ware made his ruling after a non-jury trial that industry analysts said marked an important step in resolving the issues of Internet claim-jumping and the actual value of cyber real estate.

Kremen's lawyers charged that Cohen seized control of the sex.com address in 1995 by presenting forged transfer of ownership documentation to Network Solutions Inc., which oversees the allocation of Web site addresses.

Using a company registered in the British Virgin Islands, Cohen proceeded to turn sex.com into what Kremen's lawyers call a ``multimillion dollar sex empire'' -- a one-stop shop for the nastiest, raunchiest pornography the Internet has to offer.

Lawyers say the site gets as many as 25 million hits each day, and could be worth as much as $100 million.

With other single-word Web site addresses such as business.com having sold for millions, and studies showing that sex is a major draw for people on the Internet, the sex.com site was seen as potentially one of the most valuable on the World Wide Web.

Cohen said he obtained the sex.com web address lawfully, paying $1,000 to a company called Online Classifieds which held the site registration. Kremen, who says he and Online Classifieds are one and the same, disputed that and said Cohen forged the letter which purported to back up the deal.

Ware's ruling agreed, saying it was clear that Cohen had ``devised and executed a fraudulent plan to steal the domain name 'sex.com' from Gary Kremen.''

Lawyers said the Sex.com case was important in that, unlike many previous high-profile domain name disputes involving celebrities, corporations and trademark protection, it was a simple test of whether the protections extended to physical property can also be applied to intangible assets such as Internet domain names.

``The message here is pretty clear. The domain name is property which should be protected,'' Pamela Urueta, an attorney who worked on Kremen's case, said on Wednesday.

Urueta conceded that Kremen's chances of recovering the full $65 million award ``were slim to none'', but she said that the precedent set in the case would have an important bearing on how domain names are protected in future.

``There have been countless incidents in the last few years where domain names have been improperly transferred from one party to another,'' Urueta said. ``This shows that these thieves should not be allowed to profit from their actions.''

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