Intellectual property and Technology Forum

1999 B.C. Intell. Prop. & Tech. F. 061401
Circuit Court in Virginia Rules that Domain Names are Property and Subject to Garnishment: Will this discourage cybersquatters?

by Roxanne Matthews, Staff Writer

Domain names are property that can be bought, sold, and seized to cover debts. Yes, seized. A recent Circuit Court ruling in Virginia declared that a domain name is property and is subject to garnishment.

The decision results from an attempt to secure a default judgment entered in a prior claim of trademark infringement. Umbro International claimed that James Tombas, the sole stockholder of Canada Incorporated, had registered the domain name "umbro.com" and proceeded to present Umbro with a deal that would provide him with a lifetime supply of Umbro soccer apparel, as well as $50,000 for himself, and $50,000 for an Internet charity of his choice. Tombas did not appear in court for the trademark infringement claim, and the default judgment ordered Tombas to turn over the control of the domain name "umbro.com" and pay $23,489.98 in legal fees. At this point, however, Tombas had no assets in the United States and the court did not know where he lived.

In an attempt to collect on their default judgment and gain control of the domain name, Umbro commenced a proceeding against Network Solutions, (NSI), which is the registrar for all domain names, in order to force the judicial sale of all Tombas' domain names (a total of twenty-seven) to cover the default judgment against him. NSI denied it held any of Tombas' assets, but the court held that domain names are property under Virginia law and NSI was obligated to transfer the domain names registered by Tombas into the court's control.

While the case is currently in the appeals process, it could result in a major decision that aids in discouraging cybersquatters. As domain names are sold on a "first come, first served" basis, cybersquatters, or cyberpirates as they are sometimes called, register someone else's trade name as a domain name in an attempt to profit from reselling or licensing domain names back to the companies with the registered trademark. If this decision is upheld, companies can sue for trademark infringement and, if successful, can have the domain name seized to be sold through the court to recover not only their trade name, but damages as well.

In court, NSI claimed that they have only a licensing agreement with registrants of domain names and that NSI retains actual ownership of the domain names. NSI also argued that their policy is to automatically withdraw a domain name from the registrant if there is a trademark owner, such as Umbro, charging infringement. In this case, Tombas had twenty-seven registered domain names, which Umbro was looking to have garnished in order to recover on the default judgment.

In the court's analysis of this issue, it considered NSI's Domain Name Agreement that provides that the registration of a domain name "does not confer immunity from objection to either the registration or use of the domain name." In addition, the court looked at the Registration Agreement, which obligates the registrant to comply with NSI's dispute policy. NSI explained that the dispute policy gives them the right, with thirty days notice, to "revoke, suspend, transfer or otherwise modify a domain name registration." The dispute policy also provides that NSI "will abide by those provisions of temporary or final court orders, or arbitration awards directing the disposition of the domain name, without being named as a party to the civil action."

Umbro requested a writ of fieri facias from the court, which is a lien on all the intangible property of the judgment debtor (Tombas). The lien attaches to the extent that the judgment debtor has a possessory interest in the intangible property subject to the writ. NSI argued that the writ cannot extend to domain names because the contract rights set forth in the Registration Agreement are dependent on unperformed conditions, including NSI's rights to indemnification and the registrant's continuing obligation to maintain an accurate registration record. The court did not agree with this argument because the Dispute Policy explicitly states that NSI undertakes to abide by any court order. The court read the Dispute Policy to mean that NSI had agreed to the very conditions that it was Trying to argue were unfair.

The court also found that a domain name is subject to the Registration Agreement and the Dispute Policy but that those contract provisions do not, of themselves, destroy a domain name as a subject of garnishment. The court found that there is no unperformed condition under the Registration Agreement that could prevent a registrant from the full use of the domain name registration, as NSI had tried to argue.

NSI also argued that the contract right to the performance of a service is not garnishable because it would force NSI to "perform services for those with whom it may not desire to do business." The court found that NSI's business transactions were not particularly discretionary, as they have registered approximately 3.5 million domain names since they began operation, with registration applications done electronically in a majority of the transactions. In addition, the court pointed to the fact that NSI had no problem registering the other domain names belonging to the defendant, who, in the court's words, "certainly appears to be a pornographer" to support the conclusion that its registration of domain names was fairly arbitrary and not closely scrutinized. The court disagreed with the passive role that NSI has taken with its registrants, and the fact that it does not monitor how its registrants use the domain names they register, which NSI seemed to be using to insulate themselves from trademark infringement suits. NSI argued that domain names do not have a readily ascertainable value and therefore can not be subject to garnishment. The court sided with the cases cited by Umbro which demonstrated that there is a market of domain names and that domain names have substantial value.

On March 12, 1999, the court decided that domain names are intellectual property, as they can receive trademark protection from the patent office. The court concluded that the fact that this form of property results from a service that NSI provides does not preclude it from garnishment any more than the service provided by the Patent Office in issuing a patent immunizes patents from garnishment.

The court concluded its opinion with the following: "Until Umbro's effort, domain names apparently have not been subjected to garnishment, but that is no reason to conclude that this new form of intellectual property is therefore immune. The problem of shaping the new to the old, of reconciling the dual demands of stability and change, is surely congenial to legally trained minds. Just as our profession combines the theoretical and practical, so also it furnishes insights into the perennial push of new demands pressing upon older interests...There is no reason apparent to this court why a judgment creditor should be precluded from satisfying a valid judgment just because his creditor has a possessory interest in intangible intellectual property resulting from technology of recent vintage."