When Match.com founder Gary Kremen registered the domain “sex.com” 6 years
ago, he had no idea the profound impact — or headache — the investment
would have on his life.
Two years of litigation later, he was finally vindicated from the scourge of
scandal as San Jose U.S. District Court Judge James Ware ruled in favor of
Kremen this week, finding that one Stephen Michael Cohen was guilty of
fraudulently hi-jacking the sultry site and ultimately turning it into a
multi-million dollar gig.
Wary that the defendant had moved profits into offshore bank accounts, Ware
also ordered Cohen, who owes his convicted felon status to fraud, to place
$25 million into a federal court account until the case is completed and a
final decision of damages — if any — is reached.
Kirk Ruthenberg, a Washington D.C.-based partner and head of the e-business practice with the law firm
Sonnenschein, Nath & Rosenthal, said what is most surprising about Ware’s decision, is that he opted to turn
sex.com over to Kremen before any actual damages are awarded.
“I think it’s an extraordinary remedy to free someone’s assets before damages have been awarded,” Ruthenberg
told InternetNews.com Tuesday. “I think the judge is convinced Cohen is hiding his assets.”
Ruthenberg also said it is necessary to establish an attitude of malicious intent when finding for punitive
damges in a fraud case, something the Internet Corporation for Assigned Names and Numbers refers to as acting
in bad faith.
How did these events transpire?
Kremen landed sex.com in May 1994 and held it until October 1995: Giant
registrar Network Solutions Inc. turned it over to Cohen on the basis of a
letter in which Kremen’s one-time roommate supposedly ceded the name to
Cohen.
Despite Kremen’s claim that the letter was fake, Cohen took off with it,
flourishing in a popular adult entertainment network some industry experts
estimate to be worth about $250 million. Kremen sued in 1998, claiming Cohen
had stolen the domain from him.
Still, Cohen maintained in court papers that he fairly bought the domain
name for $1,000, and that he had trademark rights to sex.com arising from an
online bulletin board system he ran for 16 years called “The French
Connection.” He would go on to countersue Kremen.
Before Monday of this week, the case was continued last August. Judge Ware
dismissed Kremen’s accusation that Cohen was guilty of stealing sex.com
because it is not a form of tangible property.
Still, Ware’s ruling this week indicates that domain name rights are
protected to some degree.
Actual profits reaped from sex.com, which features scads of porn shots
viewable from multiple pop-up windows, may never be known for sure, as Cohen
refused to divulge financial records about his business, tossing out Fifth
Amendment rights justifications to keep his financials free from the public
eye.
And this secrecy, the proceedings hinted, was part and parcel of why Ware
ruled in favor of Kremen. The judge made it clear that he did not approve of
Cohen’s attempts to hide financial details pertaining to sex.com
The case, which could prove to be a landmark in the legislation of domain
name rights, has been extremely contentious, with Kremen calling Cohen a
liar and a cheat and the latter calling the former a court-happy “nut.”
However, evidence in the past year underlines the irony of Cohen’s claim, as
he himself began filing copyright infringement lawsuits against smaller
companies with Web addresses containing Sex.com.
As for what Kremen, he was reportedly ecstatic about the outcome outside of court Monday. His supporters were just as happy.
Ellen Rony, co-author of “The Domain Name Handbook,” supplied Kremen with litigation support for the past year.
“I am exceedingly pleased that both reason and justice have prevailed in the litigation over sex.com,” Rony rold InternetNews.com v
ia e-mail Tuesday. “It’s not just a victory for Gary Kremen; it’s a clear message that cyberwrongdoing won’t be rewarded. I believe this outcome will give potential domain hijackers considerable
pause.”
Kremen said he wasn’t sure just yet what he will do with sex.com, the jury is still out, but it won’t
be hardcore porn, he said. Some speculate it could be a companion site to
his successful online dating service Match.com.
But is the case really over? Who knows but Cohen for sure? He hasn’t
indicated either way, but those in Kremen’s camp said they wouldn’t be
surprised if he appealed Ware’s decision.
Ruthenberg said he thinks Cohen may appeal to delay the time before he might have to pay punitive damages,
which depending on the court’s feelings about the issue, could be millions of dollars.
