Author: LegalEase Solutions
- Does STATE (California & New York) recognize a domain name as a “good” under the state’s particular implementation of the UCC or by some other legal mechanism that is subject to the GFP Rule, generally?
Answer: Under California law, a domain name is not a “good” under the UCC, but is a verified property interest subject to California conversion law. However, as such, it is also subject to California’s law regarding innocent purchasers to converted property.
Under New York law, a domain name that is not trademarked or patented is not considered to be a personal property and, thus, conversion principles do not apply. The only recourse under New York law in in contract against the domain name registrar.
- (a) If domains are goods subject to the GFP rule, then does STATE recognize the Thief Exception to the GFP Rule? (b) If domains are NOT goods subject to the GFP rule, then what is the status of an internet domain in terms of misappropriation or theft of that domain?
Answer: (a) See above—California does; New York does not.
Answer: (b) See above—California holds domain names to be a property right, where a domain “owner” has legal remedies in tort for conversion. Conversely, in New York, a domain name is not a property interests and a domain “owner” can only recover in contract against the domain name registrar.
- Have there been any cases where someone in the position of CLIENT LLC has recovered (or attempted to recover) an internet domain in a situation similar to the facts set forth? The term of art might be “replevin,” but that’s generally used in debtor/creditor law and so might not be the correct term in this context.
Answer: In California, CRS Recovery is very close to Client LLC. However, in New York, there is no supportive authority.
The Ninth Circuit Court of Appeals, applying California law, spoke pretty much on point about ownership interest in domain names and conversion. In CRS Recovery, Inc. v. Laxton, 600 F.3d 1138 (9th Cir. 2010), the following factual scenario was presented to the Court: Prior to 2003, Mayberry registered the domain names “rl.com” and “mat.net” with domain name registrar Network Solutions, Inc. On December 19, 2003, a new registration of mat.net was made by a man named Li Qiang (“Qiang”). The registration was made on Beijing Sinonets Network & Telecom Co. Qiang’s control of mat.net permitted him to designate his e-mail address as ***********–the same email Mayberry used—and to receive e-mail at this address in place of Mayberry.
Using this e-mail address, Qiang transferred ownership of the domain name rl.com to himself. Network Solutions accepted the transfer, acting in the belief that it was being made by Mayberry, who in fact was unaware of Qiang’s actions. Qiang later transferred the domain name to Barnali Kalita (“Kalita”), a citizen of India. In May 2005, Kalita sold the name to Laxton, a citizen of California, for $15,000. Prior to the purchase, Laxton contends he checked rl.com with the World Intellectual Property Organization (“WIPO”) to ensure there were no disputes involving the domain name. Determining there were none, Laxton consummated the purchase and assigned the name to Real Estate Loans, Inc., a California corporation he owns.
Mayberry, meanwhile, discovered that he had lost control of both domain names. He assigned his interest in rl.com to CRS, a Virginia corporation, in exchange for an undisclosed sum of cash and the company’s promise to help him recover the lost names. Contact was made with Laxton, who, having just spent thousands of dollars successfully defending rl.com from a WIPO action brought by Ralph Lauren, declined to surrender his control over the domain name. Essentially, the Court was faced with “two parties, neither of which apparently knew anything they did was wrong until it was too late, and a third-party wrongdoer from whom it is unlikely anyone can ever collect judgment.” CRS Recovery, 600 F.3d at 144.
- Domain Names Are Property Interests
The Court began its discussion in this case by acknowledging, “[l]ike the majority of states to have addressed the issue, California law recognizes a property interest in domain names.” CRS Recovery, 600 F.3d at 1142. The CRS Court affirmed an earlier Ninth Circuit case that held that “domain names are intangible property subject to conversion claims.” Id. (citing Kremen v. Cohen, 337 F.3d 1024, 1030 (9th Cir. 2003)). Moreover, “the logic of California understanding domain names as intangible property because domain names are well-defined interests, exclusive to the owner, and are bought and sold, often for high values.” Id. (citing Kremen, 337 F.3d 1024). “Domain names are thus subject to conversion under California law, notwithstanding the common law tort law distinction between tangible and intangible property for conversion claims.” Id. (citing Kremen, 337 F.3d 1024).
- Conversion of a Domain Name
“Under California law, ‘[c]onversion is generally described as the wrongful exercise of dominion over the personal property of another.’” Id. at 1145 (quoting Fremont Indem. Co. v. Fremont Gen. Corp., 148 Cal.App.4th 97, 55 Cal.Rptr.3d 621, 638 (2007)). “The common law rule thus holds that so long as Laxton exercised conscious dominion and control over rl.com, he assumed the risk on the question of whether he is correct about the true title holder.” Id. (citing Poggi v. Scott, 167 Cal. 372, 139 P. 815, 816 (1914)). “Further, where a person entitled to possession demands it, the wrongful, unjustified withholding is actionable as conversion.” Id; see also, 5 Witkin Summary of Cal. Law Torts, § 712(2) (10th ed.2005).
- Innocent Purchasers v. Thieves
“California does, however, recognize an innocent purchaser defense.” Id. “‘As a general rule, an innocent purchaser for value and without actual or constructive notice that his or her vendor has secured the goods by a fraudulent purchase is not liable for conversion.’” Id. (quoting Express Media Group, LLC v. Express Corp., No. C 06–03504, 2007 WL 1394163, at *5 (N.D.Cal. May 10, 2007)).
“The law distinguishes between a purchaser whose vendor obtained title by fraud and a purchaser whose vendor obtained title by theft, because an involuntary transfer results in a void title, whereas a voluntary transfer, even if fraudulent, renders the title merely voidable.” Id. (citing Express Media Group). See also, Cal. Com. Code § 2403(1)); State Farm Mut. Auto. Ins. Co. v. Dep’t of Motor Vehicles, 53 Cal.App.4th 1076, 62 Cal.Rptr.2d 178, 181 (1997). “Therefore, ‘an innocent purchaser for value and without notice, actual or constructive, that his vendor had secured the goods by a fraudulent purchase, is not liable for conversion.’” Id. (citing Oakdale Vill. Group v. Fong, 43 Cal.App.4th 539, 50 Cal.Rptr.2d 810, 814 (1996)).
Applying that law to CRS’s facts, the Court held that:
The key determination was thus whether Mayberry lost control of rl.com as the result of theft or fraud. To be sure, if the title were voidable Mayberry could pursue a separate action against Qiang for the fraud, as could Laxton if the title were void. However, because of the likely inability of either party to collect a judgment against Qiang, the determination of the quality of the title is of paramount importance. In any case, the facts underlying a determination on this issue are contested. Laxton alleges facts that, if credited, support the conclusion that Mayberry voluntarily gave up control over rl.com, and Qiang exploited that carelessness to fraudulently obtain control of the site. *** We thus remand to the district court for further fact-finding to resolve Laxton’s claims that Mayberry lost rl.com due to fraud.
CRS Recovery, 600 F.3d at 1145-46.
On remand, after a jury trial “the jury returned a verdict that Plaintiffs proved that Laxton and Northbay had converted rl.com.” CRS Recovery, Inc. v. Laxton, C 06-7093 CW, 2013 WL 140084 (N.D. Cal. Jan. 10, 2013). “The jury also found that Defendants had not proved either of their affirmative defenses . . . [i]n particular, the jury found Defendants had not established that Plaintiffs abandoned rl.com before Defendants acquired it or that Qiang had obtained rl.com by fraud rather than by theft and therefore gained title to it, which could be passed to Defendants as good faith purchasers.” Id.
- Additional Authority
Before the above law can apply, however, the domain name has to be properly in existence. According to In re Forchion, 198 Cal. App. 4th 1284, 130 Cal. Rptr. 3d 690 (2011), the California Court of Appeals held that “[a] domain name does not exist until it is registered.” Id. at 1308-09. “To secure the creation, registration, and use of a domain name, one must first assent to the registrar’s contract.” Id. Moreover, “[t]he registrar is obligated to provide services only so long as the registrant continues to pay a periodic renewal fee and is otherwise not in breach.” Id. “Once the contract terminates, the registration expires and the domain name effectively becomes nonexistent—returning to the public domain for anyone to register.” Id.
- Domain Names are Not Property
Only one New York Appellate Court, state or federal, has addressed whether domain names are property interests or goods. In Wornow v. Register.Com, Inc., 8 AD3d 59 (1st Dept. 2004), the Supreme Court Appellate Division held: “We are in accord with authorities holding that a domain name that is not trademarked or patented is not personal property, but rather a contract right that cannot exist separate and apart from the services performed by a registrar.” Id. (citing Network Solutions v. Umbro Intl., 259 Va. 759 (2000); Lockheed Martin Corp. v. Network Solutions, 194 F.3d 980, (9th Cir. 1999)). Although no New York appellate court has published a decision since, Wornow did rely, in party, on a Ninth Circuit case overruled by CRS Recovery, supra.
Additionally, under New York law, “[t]he tort of conversion is established when one who owns and has the right to possession of personal property proves that the property is in the unauthorized possession of another who has acted to exclude the rights of the owner.” Republic of Haiti v. Duvalier, 211 A.D.2d 379, 384, 626 N.Y.S.2d 472 (1st Dept. 1995). “The history of the application of this particular common law cause of action ‘conversion’ has always centered exclusively on the physical theft of specific, identifiable, corporeal, tangible, personal property, in its most rudimentary sense.” Shmueli v. Corcoran Grp., 9 Misc. 3d 589, 591 (Sup. Ct. 2005) (See, e.g., Comprehensive Community Dev. Corp. v. Lehach, 223 A.D.2d 399 [1st Dept. 1996] [medical files]; Warner v. Village of Chatham, 194 A.D.2d 980 [3d Dept. 1993] [automobiles]; Wallingford v. Kaiser, 110 A.D. 503 [4th Dept. 1906] [animals]).
In Shmueli, the court discussed the case, Kremen v. Cohen, 337 F.3d 1024 (9th Cir.2003), in which “the defendant was accused of stealing plaintiff’s Internet domain name by falsely informing the Internet domain name registrar that the plaintiff abandoned the name, and then taking it for himself.” Id. In Kremen, the Court reversed the district court and held (as CRS Recovery later applied) that domain names are intangible property interests subject to conversion laws. The Shmueli Court held that “[t]his court today does not go so far as to adopt the Ninth Circuit’s application of the tort of conversion to such intangibles as domain names, as that issue is not before the court.” Id. “Rather, the Ninth Circuit’s reasoning is helpful in reaching the less dramatic conclusion required in this case; to wit, that electronically written “documents” should not be treated with less dignity of ownership for conversion purposes, than ink written “documents.” Id.
Overall, because Wornow was decided in part on old law, it is possible New York Could change its stance on the issue in the future. As such, New York’s conversion principles, as stated briefly below, may become viable to domain names.
- Additional Authority
Under prior provisions, possession of property obtained by common law larceny gave no power to the thief to transfer title to an innocent purchaser for value. Tompson v. Goldstone, 1916, 171 A.D. 666, 157 N.Y.S. 621. See also, Bryant v. Century Bank, 1915, 155 N.Y.S. 1010, affirmed 169 N.Y.S. 1086.
Absent the circumstances of a completed sale by a dealer in goods to a bona fide purchaser of the goods, one may not obtain title from a thief nor may such purchaser assert a claim against true owner; innocent purchaser may acquire good title only when title of thief or his receiver is voidable. Johnny Dell, Inc. v. New York State Police, 1975, 84 Misc.2d 360, 375.