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

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

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.

Written by Niel Harper, Managing Director

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