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Should Domain Names be Considered 'Contracts for Service' or 'Property Rights'?

Niel Harper

The legal status of domain names is one of the most hotly debated topics with regards to evolving property rights and how they should be applied to technological and intellectual property 'innovations' in cyberspace. At present, there are two opposing factions on this topic: On one hand, there are those who maintain that domain names should be considered as contracts for services, which originate from the contractual agreement between the registrant and the registrar. On the other hand, we have the parties who contend that domain names are intangible property rights that reside with the domain name holder.

As the law has evolved, property has been defined as "an abstract right or legally constructed relationship among people with respect to things" or "a bundle of rights, powers, privileges and immunities that define one's relationship to a resource." These theories have been beneficial more so for normal property rights, but law courts have found it quite challenging when attempting to determine how these concepts apply to domain names.

In this theme report, I will discuss service contract rights and the 'bundle of rights' property theory, as well as examine case law in a number of jurisdictions, and present an argument for why domain names should be considered as 'property rights'.

Domain Names as Contracts for Service

A number of courts have categorized domain names as contracts for service. This in itself is not incorrect, as domain names are transferred to an individual through a contractual agreement between them and the domain name registrar. The role of the registrar is to provide a functional mapping and translation between the domain name and an IP address. The registrant maintains their right to the domain name as long as they pay the associated fee to the registrar and ensure that the domain name is not utilized in bad faith or infringes on the intellectual property of others.

An analogy has been made between domain names and telephone numbers, accompanied by an argument that both domain names and telephone numbers are allocated and ultimately managed by either a registrar or a telephone company, and as such should be recognized as a contract for use and services. Hence, a person who registers a domain name or is assigned a telephone number is simply the contractual holder of that resource and does not become its owner. Ownership remains with the registrar or phone company.

Dorer v. Arel was the first litmus test of the theory that domain names form contracts for service, and that owners have no property rights to them. The judge ruled in favour of the plaintiff, Rose Marie Dorer, finding that the defendant Brian Arel's domain name had infringed on the plaintiff's trademark. The court awarded the plaintiff damages of $5,000 and ordered the defendant to desist from infringing upon the plaintiff's trademark. However, the defendant failed to satisfy the judgment that was made against him. Subsequently, in an attempt to be creative, Rose Dorer filed a writ of execution to satisfy the judgment from the debtor's property. The plaintiff's desire was to have the court order the defendant's registrar to transfer the domain name to her. The court opined that domain names, which are not afforded protection under trademark law, are nothing more than contracts of services and cannot be freely traded on the open market. As such, "a judgment creditor may not levy upon and sell a judgment debtor's registered service mark or trademark."

This case did not ultimately answer the question whether domain names constitute property, specifically with regards to the writ of fieri facias. Instead, the court indicated that other options were available to the plaintiff, namely the registrar's policy or ICANN's UDRP process. Either option afforded Rose Dorer the chance of procuring a successful transfer of the domain name.

A similar view was held by the court in Network Solution Inc. v. Umbro International whereby it was reasoned that the act of registering a domain name does not entitle an individual to any rights enforceable against a third party (garnishment) aside from the right of the registrant to possessory interest during the contractual term with the registrar. The Supreme Court of Virginia, in reversing the judgment of the court of first instance, held that domain names cannot be abstracted from the contractual agreement with the registrar, and are inherently linked to the services provided by Network Solutions Inc.

Dr. Konstantinos Komaitis argues in his book 'The Current State of Domain Name Regulation: Domain Names as Second Class Citizens in a Mark-Dominated World' that domain names should not be given protection on the sole basis of commercial use. Instead, he asserts that the value of a domain name is in the name itself. The potential value of domain names is contained in their popularity, memorability, and other key elements of value creation. Hence, confining the assessment of domain names to their relationship with trademarks ignores the evolution of the Internet and its true character of perpetual innovation.

Why Domain Names Should Be Viewed as Property Rights

The concept of property has been characterized by a number of conflicting philosophies and postulates before it attained a certain degree of harmonization among legal experts. However, it was Hohfeld and Honore that first articulated the 'bundle of rights' theory, which is widely accepted as one of the strongest definitions of property. The term 'property' is a multidimensional concept that incorporates a bundle of rights, immunities, privileges and powers that define the established situation of an individual, institution or government to a resource.

This includes the right to possess, to receive income from, to alienate, to exclude, to dispose or to recover title from whoever has illicitly obtained ownership of the resource. Property includes virtually every type of valuable rights and interests. Therefore, it can be argued that while the process/system of registering a domain name can be viewed as a contract for service, the value accrued and revenue derived from a domain name via legitimate contract rights means that it can be viewed as property. Consequently, domain names are being increasingly recognized as intangible property, subject to seizure or applicable as a source of in rem jurisdiction.

For example, in Commonwealth of Kentucky v. 141 Internet Domain Names, the court opined that since property is largely rationalized as a bundle of rights which is comprised of the right to ownership, controlling interests, the right to prohibit, the right to earn revenue, the right to transfer inter vivos and causa mortis, domain names should be recognized as a kind of property.

In another case, Kremen v. Network Solutions, Inc., the court held that a three-prong test should be adopted to establish whether domain names are property. There must be (1) an interest capable of precise definition, (2) it must be capable of exclusive control, and (3) the putative owner must have established a legitimate claim to exclusivity. The court found that domain names satisfied all the outlined criteria, and as such should be classified as property.

Referencing legal approaches to domain names in the United States, Britain, and India, the court ruled in Tucows.Com Co. v. Lojas Renner S.A. that domain names could be viewed as personal property. The ruling appeared to be an extension of jurisprudence that regards other types of intellectual property, such as patents, as property. The court also cited academic theory from Hohfeld by acknowledging that property is not a thing but rather a bundle of rights held by persons over physical things, particularly the right to exclude others.

The Anti-Cybersquatting Consumer Protection Act (ACPA) makes allowances for trademark owners to bring proceedings where the domain name registrar or registry is situated in the USA. This is particularly useful when the registrant is anonymous or cannot be located. Taking into consideration that in rem proceedings are commonly restricted to tangible property, one could argue that the ACPA is applying property rights to intangible items. A supporting viewpoint was tendered in Cable News Network v. cnnnews.com whereby the court ruled that domain names are properties that are located where they are created (where the registrar is domiciled).

Conclusion

So why is it important for domain names to be categorized as property? For one, it permits owners to exploit its commercial value, especially with regards to acquiring financing. Additionally, property rights in a domain name provide legitimacy that enables domain name holders to robustly challenge the claims of trademark owners in court actions. The ability to develop a domain name to attract millions of visitors and potentially yield millions of dollars is where its value lies. However, to date, there is still insufficient case law to establish a strong precedent for legal proceedings that address domain names as property rights. Still, court decisions and legal opinions in the US, UK and EU are seemingly converging towards property rights and away for contracts of service.

By Niel Harper, Managing Director
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Give It Up Philip Sbarbaro  –  Jul 06, 2018 5:03 PM PST

Dear Mr. Harper,
I read your well-written article, Should Domain Names be Considered 'Contracts for Service' or 'Property Rights'?, with interest.  You argue like a lawyer, and may be a very persuasive one, but you ultimately come down on the wrong side on this issue.  Give it up.
By way of background, I was the outside General Counsel and Chief Litigation Counsel for Network Solutions, Inc.(NSI) all throughout the years (1995 - 2001), when this issue was hotly contested and resolved correctly by courts from The High Court of Chancery in London to the small claims court in Texas.  I participated in over 5,500 domain name registration disputes and appeared in over 225 federal and state courtrooms to debate the issue.  I was appointed to the World Intellectual Property Organization's expert panel and eventually authored much of the original Domain Name Dispute Policy. I also was asked to assist the Senate and House Committees on the drafting of the Anti-Cybersquatting Consumer Protection Act. And, yes, I was the attorney who appeared and agrued the Umbro case, both in the Circuit Court in Fairfax, Virginia and in the Supreme Court of the Commonwealth.  Please check with Tom Indelicarto, Esq. at Verisign, Inc. or Timothy Hyland, Esq. at Hyland Law in Virginia for further bona fides.  Both gentlemen are the best.
So, let's back up and speak the King's English for a moment.  "Domain name" is an adjective, not a noun. "Registration" is also an adjective.  The noun is "contract". It's a domain name registration contract. When someone signs such a contract, that person has certain contract rights.  Those rights do not equate to a copyright, or a trademark, or a service mark, or a patent, i.e., intellectual property", deemed such by statute. They are simply contract rights which enable the holder of those rights to use a certain set of characters on the Internet, as identification, to the exclusion of everyone else. Even in your article, you refer to such a person as a "domain name holder”.  You do not refer to such a person as a "domain name owner”, do you.  I coined the term "holder" long ago to describe the person on the other end of the contract from the registry. (There were no registrars at the time; the only registry was the registrar.) What the holder receives under the contract (and I should know, because I drafted the very first one ever used) is the right to use his/her self-created character string for a given period of time (assuming no one else asked for and received it first).  There is no "inventory" of domain names.  A specific character string used as a domain name doesn't exist until someone makes it up and askes for it first (first-come, first-served).
Let's turn to a concrete example. circleid.com was registered with Network Solutions, LLC, as a registrar, on July 1, 2001.  It is due to expire on July 1, 2025. Wonder why they use the term "expire"?  Don't pay the fee and watch what happens to the registration.  No, you are incorrect in the article (5th paragraph). Ownership does not "remain with the registrar". Ownership never existed in or with the registrar. It simply expires....gone.  When the sheriff comes to levy on "property", just ask him to seize all the programs in the computers (licensed software) and all the "domain name registration contracts". Not happening. Take the Umbro soccer ball and the cannoli, leave the intangible stuff.
Does that registration contract have value while it exists?  Of course; well, some do and some don't.  The contract rights for amazon.com or aol.com have substantial value.  Domain name contracts are now bought and sold (and transferred by registrars) all the time.  If you drop into the shorthand or slang, however, one says that "domain names are bought and sold every day", but you know what they mean.
Niel, the "legal status of domain names" is not a "hotly debated topic". The conclusion that a domain name registration contract is a contract for services has stood the test of time, some twenty-three years.  But I love the way you raised it, Phoenix-like from the ashes.

Kind Regards,
Phil Sbarbaro, Esq.

Hello Philip,Thank you for your comment and Niel Harper  –  Jul 07, 2018 6:40 AM PST

Hello Philip,

Thank you for your comment and extensive thesis on your qualifications. Glad that someone of your ‘eminence’ would comment on my post.

However, my position still remains, and here’s why.

Firstly, the United States Patent and Trademark Office (USPTO) allows individuals to register domain names as trademarks. This is particularly beneficial for trademark owners because while domain names are protected against theft and cybersquatting, a domain name that is a registered trademark also enjoys powerful federal trademark protection. The key to registering a domain name as a trademark is that the name serves as a source identifier. It must be perceived as indicating a source, and not merely as an address to a website. As you well know, trademarks are protected by intellectual property rights.

Secondly, there is the existence of the Anti-Cybersquatting Consumer Protection Act (ACPA). This Act simplifies the process for individuals and companies to lawfully obtain domain names that are confusingly similar to their names or valid trademarks. To do so, however, they must establish that the domain name holder acted in bad faith. Congress used a powerful property metaphor when it described cybersquatting as a “land grab”. It was also argued that real estate is one kind of property and trademarks another, and that ‘grabbers’ of either property injure holders and deceive the public by pretending to be who they are not.

Thirdly, instead of the lengthy process of running domain name disputes through the court system, the Uniform Domain Name Dispute Resolution Policy (UDRP) created by ICANN has become highly popular. In order to prevail in a UDRP dispute, the trademark owner must show:

a) That the trademark owner owns a trademark (either registered or unregistered) that is the same or confusingly similar to the registered second level domain name;
b)That the party that registered the domain name has no legitimate right or interest in the domain name; and
c) That the domain name was registered and used in bad faith.

As you can see, all three areas mentioned above converge around trademarks and the intellectual property rights of trademark owners. Trademarks and domain names share a number of similar characteristics with regards to intellectual property rights. For example, a trademark promotes and protects a company’s brand name, while a registered and protected domain name provides protection against any unauthorized use of your domain name by any person or entity, particular those engaging in bad faith (misuse or abuse). A trademark makes any product or service prominent in a chosen marketplace, while a domain name can also function to increase the prominence of a product or service worldwide. A trademark delivers the public face value of an organization, and the same thing is achieved through domain names within a broader geographical context. Hence the value of a domain name as property is extremely high.

Domain names can also be registered and protected as trademarks or service marks at the national and international levels, and they satisfy all conditions to be duly registered and protected similarly to trademark and service marks. In many legal jurisdictions, as well as under the auspices of ICANN and WIPO, domain names can be and are protected as trademarks. I remind you again of the rulings in Commonwealth of Kentucky v. 141 Internet Domain Names, Kremen v. Network Solutions, Inc., and Tucows.Com Co. v. Lojas Renner S.A. where domain names were classified as property. I also want to bring to your attention OBG Ltd. v. Allan where Lord Hoffman for the majority observed at para. 101, “I have no difficulty with the proposition that a domain name may be intangible property, like a copyright or trademark” and went on the demonstrate how domain names are in fact independent of the contractual terms under which they are acquired. Similar conclusions were reached in Office Depot, Inc. v. Zuccarini and Bosh v. Zavala. Interestingly enough, in Bosh v. Zavala, the final court decision confirmed that domain names are indeed property and can be sold to offset a monetary judgment. The aforementioned are just a small subset of cases where U.S. and other common law courts have concluded that domain names are a form of property. As such, I don’t think there’s any doubt from a legal perspective, or in a constantly evolving Internet economy, that domain names can indeed be considered as intangible property and protected as such under existing intellectual property rights regimes.

As for my background, I am a Charles Christopher  –  Jul 08, 2018 10:51 PM PST

As for my background, I am a nobody, this can be confirmed by anybody.

I think people of a hundred years ago would be hard pressed to recognize today’s definitions of rights, value and property. Our electronic records have shifted rights, property, and “value” in ways that are not what they would see as sensical.

https://www.miamiherald.com/news/local/community/miami-dade/article47675590.html

In the link we have a women who owns a home, for which there is no dispute. A bogus quitclaim deed was accepted and "her” home sold. The courts ordered her evicted, acknowledging the home was stolen, and her right has CHANGED to her being able to sue the recorder.

So the question then becomes where is the true control, value or “rights"? ….

The thieves extracted the value of the home purely through pretty pieces of paper with pretty writing, true ownership was meaningless in extracting the value. The thieves are not even accountable in this case.

Today’s electronic systems all to often have this in common. A database record has more value than the tangible, the thing the entry points TO … So define rights in this case. She was the owner, and yet the only right she has now is the right to sue the recorder’s office. The recorded would seem to have the most rights here declaring through pretty pieces of paper with pretty writing who can receive money to make the NEXT database record update. True tangibles meant nothing here. Yes the database entry was “backed” by the property throughout, like the dollars bills in my wallet are DEPT and not an asset, and are “backed” by the full faith of the US ….

Are domains property or a contract for rights?

Let a thief take its database entry for a few transfer and whois spins though a number of cooperative Chinese registrars and see how things turn out …. Tell me who owns the property and who has all the rights ….

All this mental masturbation is great, until something “impossible” happens … On a regular basis …

“It’s just too easy to steal somebody’s property by filing a fraudulent quitclaim deed,” Miami-Dade Inspector General Mary Cagle told the Miami Herald and news partner WFOR-CBS4.”

Remember the recent Experian and Exactis hacks? I don’t even "own" myself, their database entries "own me”. But I have the “right" to expend my money to file a pretty piece of paper with pretty writing saying someone lied about being me. My living existence “backs” their database entries, and its value ….

Ownership/Control has moved from "holding” the tangible in my hand to “holding” control of the database entry. GDPR makes the experience even more enjoyable as the database record becomes unobservable.

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