For Sale WLS Illegal in Wake of Sex.com Ruling?

[Duke]

Here is a question for you. Yesterday the U.S. 9th Circuit Court of Appeals ruled that Verisign is liable for damages they caused the owner of Sex.com by failing to exercise their fiduciary duty to protect the owner's "property" (which was stolen by a domain thief). The court ruled that domain names must be treated just the same as real estate.

In the face of that ruling yesterday, how is it going to be legal for Verisign to sell options to buy someone else's property (which is exactly what WLS is)? No one can sell an option to buy my home without my permission and since the court says domain names have the same status as my home it looks to me like Verisign would clearly be engaged in illegal conduct if they try to sell WLS slots.

 

[Duke]

The above situation is especially sticky when you consider that as the registry that sold you your domain, Verisign, is charged with protecting your property. Yet by selling an option on your property they stand to gain if you lose your property and someone has to pay them again (at four times the current rate) to gain control of your property. It is greatly to their benefit if you lose your property. Looks like a bit of a conflict of interest to me. I think maybe the lawsuits are just getting started. I'm no lawyer but it raises some interesting questions.

 

[cyphix]

Some very interesting & good points Duke.... but I'm not exactly happy about this finding since I am starting to lean to WLS.

 

[domnet]

Originally posted by Duke
No one can sell an option to buy my home without my permission and since the court says domain names have the same status as my home it looks to me like Verisign would clearly be engaged in illegal conduct if they try to sell WLS slots.

Well if you fail to pay your bills your home will be repossessed and resold later. Without your permission I might add

 

[Kid Kool]

Originally posted by domnet


Well if you fail to pay your bills your home will be repossessed and resold later. Without your permission I might add

Right, but that's not what he is saying. They cannot offer an option to buy your home before it were repossessed since they don't have the authority to offer it for future sale at that point.

 

[Jack Gordon]

I think the big difference is that you don't actually "own" a domain since it is not an ownable object. You lease it with many of the temporary rights of ownership, but you never have clear title to it, since it is something that must be renewed periodically.

What WLS is selling is not an option on your domain, but an option on the possibility that you will give up the lease on your domain.

 

[Duke]

Originally posted by FrontRow
I think the big difference is that you don't actually "own" a domain since it is not an ownable object. You lease it with many of the temporary rights of ownership, but you never have clear title to it, since it is something that must be renewed periodically.

What WLS is selling is not an option on your domain, but an option on the possibility that you will give up the lease on your domain.

That's the SIGNIFICANCE of yesterday's ruling in the sex.com case. The old rules no longer apply. Domains have now officially been equated with real estate. Contracts are completely unenforceable when they are in violation of existing law.

Verisign is claiming a domain is just a combination of letters and they have complete control over how those are sold and resold. The court says, no, you are selling the equivalen of real estate and will be governed by property ownership law (which is why VerisIgn now faces huges damages in the sex.com case). Guess who wins that argument - The Court or Verisign?

Leaseholders have a great deal of protection under current law. I have first hand knowledge of this as a long time leasor of commercial property and someone who has been in court battles with landlords (and won them I might add).

Under this ruling I don't think there is any way you can get away with selling options on property occupied by someone else as long as their accounts are in good standing. Verisign wants to sell an illiegal option BEFORE you ever go into default . If the courts rule they are selling illegal options then they also face major problems with the Securities and Exchange Commission (which has hit corporations with hundreds of millions of dollars in fines for securities fraud).

I'm not the only one wondering about these things in the wake of yesterday's decision. BuyDomains CEO Michael Mann posted this at CircleID earlier this week, before the sex.com decision even came down:

"Illegally Selling Options Contracts

Also disturbing is that the WLS ultimately proposes selling an option on someone else's property – there is oftentimes no service even performed if the name is renewed by its owner. I imagine Verisign will get sued by many companies who didn't appreciate their property being auctioned off while they were still a domain customer in paid status and in good standing, especially considering the pitiful state of Verisign's domain records which cause thousands of paid-for domains to be deleted by mistake every month." - Michael Mann, BuyDomains.com CEO

Admittedly he is a noted anti-WLS guy but that doesn't mean he doesn't have valid points that will be seized on by attornies with the precedent set in yesterday's case.

I have no idea how it will turn out but this is going to be in the court system for a long time to come. I don't think there is any way you are going to see WLS implemented Oct. 11. Knowing the court system, it may not even happen in our lifetime. My guess is that in the end, Verisign or ICANN or both, will just throw in the towel when they look at the time and money this will cost them to defend.

 

[Duke]

Originally posted by domnet


Well if you fail to pay your bills your home will be repossessed and resold later. Without your permission I might add

What does that have to do with anything? Verisign wants to sell options on your home long BEFORE you ever miss a payment. Big difference there. The court has ruled the sex.com owner DID have the RIGHTS of a real estate OWNER. That is why Verisign now stands to lose millions of dollars in damages payable to him. This ruling appears to change everything we assumed before.

 

[Duke]

Check this quote out - it will settle all of the arguments of whether a domain name owner has the RIGHTS of a real estate owner or not:

"The 9th U.S. Circuit Court of Appeals Judge Alex Kozinski said courts should treat domain names, despite their virtual nature, exactly as they treat "a plot of land."

 

[domnet]

Verisign has stated that this "case will likely be retried within a year", so the decision is not final by any means.


Duke, what I was getting at was say everyone agrees to treat a domain like a 'plot of land'.....well all verisign would have to do is alter their wls plans and only sell the subscriptions during redemption period when the user has failed to make payment. Verisign stands to make millions under the wls proposal, so they will not simply roll over dead.

 

[Duke]

Originally posted by domnet
Verisign has stated that this "case will likely be retried within a year", so the decision is not final by any means.


Duke, what I was getting at was say everyone agrees to treat a domain like a 'plot of land'.....well all verisign would have to do is alter their wls plans and only sell the subscriptions during redemption period when the user has failed to make payment. Verisign stands to make millions under the wls proposal, so they will not simply roll over dead.

We're on the same page Domnet. It will indeed be tied up in the courts for years...and as you said Verisgn will have to ALTER their current WLS plans to try to bring them into compliance with the law. In the meantime they are going to face court challenges at every turn. All of this will take forever and I see no way you will see WLS Oct. 11.

I think with Verisign continuing to lose customers and money hand over fist, their survival may indeed depend on getting WLS through. However that fight is going to drain them of even more resources they can ill afford to lose. I wouldn't want to be a Verisgn stockholder right now.

 

[Chaiki]

Duke,

When you buy a house you own it 'Fee Simple'.. subject to property taxes.

In the domain world, your renewal fee is your property tax.

If you don't pay it the name goes into deletion and the WLS get's sold to the next person. Your rights as the former registrant expired with the non payment of renewal. Verisign is not selling the former registrants rights because the former registrant had no rights past their renewal period. It's in the T's and C's of the registration agreement.

 

[Chaiki]

Also agree with 'frontrow' .. domain ownership is a license.. similar to radio license .. it has value as property for resale, but it is a license agreement that grants holder first right of refusal to renew.

 

[_Yakov_]

Duke, where in the courts statement did you see lines defining domains as a RE? Can you quote them here? I didn't see any.

 

[Duke]

Originally posted by Chaiki
Duke,

When you buy a house you own it 'Fee Simple'.. subject to property taxes.

In the domain world, your renewal fee is your property tax.

If you don't pay it the name goes into deletion and the WLS get's sold to the next person. Your rights as the former registrant expired with the non payment of renewal. Verisign is not selling the former registrants rights because the former registrant had no rights past their renewal period. It's in the T's and C's of the registration agreement.

As I already pointed out, Verisign's registration agreement means nothing when it is in violation of current law. Such contracts are completely unenforceable. Regardless of what your or FrontRow or I care to believe, the Judge for the U.S. 9th Circuit says you have an OWNERSHIP interest in your domain name as long as you hold it and have paid for it and the registrar must safeguard your ownership interest. Verisign thought they were protected from damages BECAUSE of their T&C. Turns out the T&C was worthless because the law of the land overrides any contract - now they will have to pay damages if this ruling stands.

I wouldn't think Verisign has a right to sell options on your ownership interest at least until AFTER you have defaulted on a payment. Perhaps they could get away with it once a name has gone into RGP.

In any case with the millions they stand to lose for mishandling the sex.com owner's property I expect that they will have to make a much more vigorous effort to notify domain name owners when their names are about to expire (far beyond a bounced email). Domain name owners rights have been strengthened by this ruling and registrars will have to tread much more carefully in how they handle this property.

 

[Duke]

Originally posted by _Yakov_
Duke, where in the courts statement did you see lines defining domains as a RE? Can you quote them here? I didn't see any.

I already did quote it above:

"The 9th U.S. Circuit Court of Appeals Judge Alex Kozinski said courts should treat domain names, despite their virtual nature, exactly as they treat "a plot of land."

A plot of land, everywhere in earth, is real estate.

 

[izopod]

Originally posted by Duke

Domain name owners rights have been strengthened by this ruling and registrars will have to tread much more carefully in how they handle this property.

Your rights as a domain owner are only as good as your lawyer. I have a feeling this ruling will make it easier for corporations to "reverse-hijack" names.

Can you imagine trying to sell a name here in a few years? You'd have to make sure there weren't any liens against the domain property. THAT COSTS MONEY!!

Registrars will have to charge more per domain with this ruling to cover future litigatation costs that are sure to rise (insurance premiums, etc). All this ruling will do is slow the internet, create new gov't agencies, more taxes and will do nothing for the "average" domain holder. And I do mean average. Since most of us have "average" domains this new status doesn't really do anything for us. It adds to the cost of maintaining these names without really adding any new benefit. Those that own names like "car.com", etc will probably be the ones that benefit

 

[Duke]

I haven't been able to find the full text of the court ruling but here is the Asscociated Press account of the ruling which includes the property ownership quotes I used above:

http://www.theledger.com/apps/pbcs.dll/article?AID=/20030726/APF/307260569

It would be interesting to hear from some our attorney members about what impact this might have. My intention is more to raise questions rather than provide answers on legal matters that are definitely outside my area of expertise. The ongoing developments will certainly be interesting in any case.

 

[Duke]

Originally posted by izopod
All this ruling will do is slow the internet, create new gov't agencies, more taxes and will do nothing for the "average" domain holder. And I do mean average. Since most of us have "average" domains this new status doesn't really do anything for us. It adds to the cost of maintaining these names without really adding any new benefit. Those that own names like "car.com", etc will probably be the ones that benefit

Valid points Izopod. Though property rights appear to have been strengthened it could very well come at a cost. These are the kinds of things I'm wondering about. The effects could be positive in some ways and negative in others. It does seem that with the liability issue so clearly defined now, that acquiring and transferring names as easily as we do now may become a thing of the past. I would hate to go back to the days of faxing documents, having them notarized, etc. That would really cast a pall over this business and would be a real shame.

 

[DaddyHalbucks]

Fee simple, or leasehold, or estate for years, or a lifetime estate, or condominium.. are all just FORMS of ownership.

Ownership form doesn't change the nature of the PROPERTY.

Real estate is still real estate. The land is still land. The building is always a building.

I am a former licensed real estate broker in the states of RI and MA.