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July 25, 2003 01:44am
Owner of Stolen "Sex.com" Can Sue VeriSign Court Rules
Source: Reuters
by: Elinor Mills Abreu

(SAN FRANCISCO, CA) -- The owner of "sex.com," once considered one of the Internet's hottest addresses, can seek payment from the company that improperly transferred the domain to a "con man" who later fled to Mexico when ordered to pay $65 million, a court ruled on Friday.

The Ninth Circuit Court of Appeals in San Francisco ruled that "computer-geek-turned-entrepreneur" Gary Kremen can hold VeriSign Inc.'s Network Solutions unit liable for handing the sex.com Web address over to a "con man."

The decision has widespread implications for companies that register domains, which until now have not been held responsible when Web sites are switched from their rightful owners, a lawyer for the plaintiff said.

"This is a landmark Internet decision," said James Wagstaffe, Kremen's attorney. "It is the first time a court has applied traditional property protections to a domain name."

In April 2001, Stephen Cohen -- who lawyers said turned the sex.com domain into a multimillion-dollar porn empire -- was ordered to pay $65 million in compensation for lost profits and $25 million in punitive damages to Kremen in the largest judgment ever in a domain name theft case.

Kremen had registered the domain in 1994, but lost it the following year and did not recover it until 2000, long after the dot-com boom and bust.

But Kremen has been able to get only a fraction of the money because after the trial Cohen sent his assets out of the country and fled to Tijuana, Mexico, Wagstaffe said.

Kremen sued Network Solutions, the main registry of ".com" addresses which is now a part of VeriSign, charging that the company mishandled his domain name.

He argued he had a property right in the domain and that Network Solutions should be held liable for mistakenly giving it away.

The U.S. Court of Appeals for the 9th Circuit agreed with him and reversed a federal district court order in favor of Network Solutions, sending the case back to the lower court.

FORGED LETTER

Having recently been released from jail where he was sent after a conviction for impersonating a bankruptcy lawyer, Cohen used a forged letter to trick Network Solutions into transferring the domain to him, according to the appeals court.

The letter claimed that Kremen's business, Online Classifieds, did not have an Internet connection and included a forged signature.

Despite the fact that Network Solutions made no effort to contact Kremen, the lower court exempted the company from liability. The court concluded that although domain names are a form of property, they are intangible and thus not subject to the law governing wrongful taking of another's property.

The appeals court rejected that narrow interpretation, although it affirmed rulings in favor of Network Solutions on two other claims related to breach of contract.

"There is nothing unfair about holding a company responsible for giving away someone else's property even if it was not at fault," the appeals opinion said.

"Cohen is obviously the guilty party here, and the one who should in all fairness pay for his theft. But he's skipped the country, and his money is stashed in some offshore bank account," the written opinion said. "It would not be unfair to hold Network Solutions responsible and force it to try to recoup its losses by chasing down Cohen."

The case took a bizarre turn in 2001 after the district judge declared Cohen a fugitive from justice, signed an arrest warrant and sent the U.S. Marshals after him. Kremen then put a "wanted" poster on his sex.com site with a mug shot of Cohen and offered a $50,000 reward.

Cohen's lawyers asked the district court to vacate the arrest warrant, claiming that Cohen was under house arrest in Mexico and that his life would be threatened by gunfights between lawmen and bounty hunters. The court denied the motion.

The lawyer who represented VeriSign declined to comment and a spokeswoman for VeriSign's Network Solutions unit said the company does not comment on ongoing litigation.

Kremen, who lives in San Francisco and operates sex.com as a porn portal, did not immediately return a call seeking comment.

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