RealTime IT News

Sex Site Settles with VeriSign

The six-year battle over one of the Internet's most highly desired domain names is over for now.

Founder and CEO of Sex.com Gary Kremen said he has settled his complaint with VeriSign and its Network Solutions domain registrar division for an undisclosed amount. Insiders say the deal was sealed at around $15 million.

In June, the U.S. Supreme Court rejected the appeal of Stephen Michael Cohen, the man found to have illegally hijacked the domain. Kremen continued his case against VeriSign for unilaterally taking away the Sex.com domain name, and for inadequately safeguarding his property.

"I'm glad we have reached a settlement so I can put the case behind me," Kremen told internetnews.com

Kremen said he is now mulling over additional legal action against representatives SAIC.com, which was part of the original complaint, but later dropped from the suit.

A spokesperson with Mountain View, Calif.-based VeriSign declined to comment. In the past, the company argued that domain names are not the property of registrants and that, even if they were, they are not the kind of "property" capable of being "converted" or wrongfully transferred to a third party.

The American Internet Registrants Association (AIRA) filed a friend-of-the-court brief filed in the case early in 2002, and Tuesday the group said the court's decision paves the way for those afflicted registrants to recover their damages (lost profits, lost opportunities and attorneys' fees) under the law.

"Hundreds of domain name registrants have lost domain names due to the negligence of domain name registrars," William Bode, managing partner of the Washington, D.C. law firm, Bode & Grenier, LLP, General Counsel for the AIRA said in a statement. "This ultimately will enhance Internet commerce."

The repercussions of the lawsuit are expected to expand past the domain name registrars and impact all areas of Internet infrastructure and governance, as well as intellectual property law. Kremen said now electronic registrars must use the same level of care as any other business and will be responsible for abusive practices.

"Mine was the first case that electronic registries are the same as paper registry," Kremen said. "Before my case, you used to have an actual document unless it was a copyright. In the electronic age, people are knocking that notion down."

Kremen said he expects big changes in the legal aspects of data stored electronic registries in the next five to 10 years including phone numbers, airline frequent flier miles and treasury bill entry forms.

Torrid Past
Kremen registered Sex.com in 1994 through Network Solutions. At the time, Kremen was doing business as Online Classifieds, Inc.

After a period of a year while sex.com sat dormant, Cohen, who previously served time in federal prison for bankruptcy fraud and impersonating an attorney, decided to commandeer the potentially lucrative domain name and forged a letter written on Online Classified letterhead to Network Solutions requesting transference of ownership.

"It now appears that Cohen simply picked up the phone, asked for and was granted the Sex.com domain name immediately," Kremen said. "This was at a time when the queue for domain names was over four weeks. VeriSign made no attempt to verify Stephen Cohen's connection to Sex.com."

According to reports, Cohen then launched an Internet pornography business based on the sex.com domain name, but by the time Kremen was aware of the theft, Network Solutions refused to change the registration back without a court order.

Kremen went to legal battle against Cohen and his numerous business entities, with an added appeal that Network Solutions should be responsible for negligence due to the fact that the registrar did not even attempt to verify the forged letter that served as the basis for the domain name conversion.

In September 2002, the U.S. Court of Appeals for the 9th Circuit approved a $65 million award in Kremen v. Cohen, setting the wheels in motion for Kremen to regain control of Sex.com and collect a substantial judgment from Cohen, including $25 million in punitive damages.

But by that time Cohen had skipped off to Tijuana, Mexico, and would not comply with the judgment's orders. Kremen said he still gets regular calls from Cohen who claims he is in Mexico or the West Bank of Israel Cohen is reportedly the brain behind Earth Station 5 or ES5.com, a P2P site that claims to be immune to prosecution from the recording and movie studios.

During the same ruling, the claim against Network Solutions was rejected based on the fact that a private company which is the sole domain name registry for domain names is immune from civil suit in cases where it negligently handled a domain name.

Kremen then petitioned the Ninth Circuit Court of Appeals.

The appeals court majority noted that the state Supreme Court had ruled as far back as 1880 that intangible property - represented, in that seminal case, by a stock certificate - could be converted. Judge Gerard Kosinski said in his written opinion that it is clear from the 1880 case and many lower-court rulings since then that a domain name is property that can be converted and thus NSI had liability.