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Garnishing Domain Names for Unpaid Debts

Initially, in the far distant past, in the mid-1990s, domain names were seen primarily as addresses in cyberspace — much like telephone numbers or postal addresses to which they were analogized — rather than as assets of value in themselves. Realization that domain names were more than addresses came about quickly as one group of registrants demonstrated ingenuity in monetizing their holdings while another group of registrants began infringing trademark owners’ rights to exclusive use of their marks on the Internet. There is nothing unlawful in monetizing and selling domain names as long as they are not found to have infringed third party rights. Indeed, domain names lawfully acquired are an economic asset, albeit of uncertain value until realized through sale or license to an arm’s length purchaser.

In contrast, infringing domain names have transitory value until they are removed from the Internet by an arbitral award under the Uniform Domain Name Dispute Resolution Policy (UDRP) or judgment under the Anticybersquatting Consumer Protection Act (ACPA). Noninfringing domain names potentially have significant value.

Garnishment in the Context of Domain Names

Enforcing a money judgment by garnishing a debtor’s domain name first arose in a pre-ACPA action, Dorer v Arel, 60 F. Supp. 2d 558 (E.D. Va. 1999) in which the court presciently observed that

there is a lucrative market for certain generic or clever domain names that do not violate a trademark or other right or interest, but are otherwise extremely valuable to Internet entrepreneurs.” It concluded with another prescient observation that a “domain name with significant value on the open market certainly would be an attractive, arguably appropriate target for a judgment creditor seeking to satisfy a judgment from a wayward debtor.

The question in Dorer was whether plaintiff-trademark owner could enforce its money judgment by garnishing the infringing domain name registered to the judgment debtor. The court found that garnishment of domain names was a “knotty issue” which fortunately “need not be resolved because there is a more readily available, practical solution to the problem to be found in [Network Solutions Inc.’s] policies. Garnishment was a route to take possession of the domain name but the route was superseded by the ACPA in which the trademark owner has an option of either cancelling the registration of having the domain name transferred to it.

The court in the next case up, Network Solutions v. Umbro International, Inc. 529 S.E. 80, 86-87 (Va. 2000, citing Dorer found that domain names were not garnishable because they were essentially contracts for services even though domain names may also be characterized as intangible property. Presumably, a creditor wishing to enforce its money judgment in Virginia would not be able to garnish a judgment debtor’s interests in domain names–possibly the only asset a judgment debtor may have–by having them attached and sold.

Although garnishment takes a back seat to cybesquatting in the decisional literature it is important for businesses to recognize the procedure as a critical tool in executing judgments against debtors who hold domain names. What occasions this blog is the filing of a recent decision favorable to garnishment from the Minnesota Court of Appeals, Sprinkler Warehouse, Inc. v. Systematic Rain, Inc. (February 2, 2015). It offers an opportunity to reflect on earlier cases and point out the different views of domain names as either garnishable property or non-garnishable contracts for services.

The law as it stands today is that garnishment of domain names for the satisfaction of money judgments is not allowable in Virginia, but is allowable in California, Louisiana and Minnesota.

Cyberspace Analogized to Actual Space

Analogizing domain names to telephone numbers or postal addresses rather than what they literally are, alphanumeric strings introduces a comparison with locations of real property in actual space. Non-metaphorically, a party purchases a domain name for a stipulated period subject to renewal under a service contract. There is a subtle interplay between ownership of a domain name and holding it until it lapses purposely or inadvertently.

Early decisions from federal courts analogized domain names to real property. So, for example, in Virtual Works, Inc. v. Volkswagen of Am., Inc., 238 F.3d 264, 267 (4th Cir. 2001) a federal court also sitting in Virginia equated cybersquatting which is a violation of a trademark owner’s statutory rights as “the Internet version of a land grab.” In a California case in 2003, Kremen v. Cohen, 337 F.3d 1024, 1030 (9th Cir. 2003) the court held that “[r]egistering a domain name is like staking a claim to a plot of land at the title office. It informs others that the domain name is the registrant’s and no one else’s.”

Although courts in later cases have cooled on real property metaphors in favor of domain names as intangible property, a characterization that has also been endorsed by other common law courts in the United Kingdom, Canada and India, the real property analogy of domain names to “a house and its address” points the way to their asset value. This focal correction from connotative to denotative, though, is a significant step on the way to concluding that domain names are subject to garnishment. The right to garnish property is subject to state law so that if cases are commenced in U.S. federal court state law will apply. In a follow-up to Umbro for example the court in Virtual Works cited the state decision as precedent in ruling against garnishment.

From Contracts for Services to Garnishable Property

Before 1999 courts could permanently enjoin a defendant from exploiting the infringing domain name and plaintiff could extra-judicially take possession of it through the NSI procedures noted above. While that may have satisfied one part of the requested relief — taking possession of the domain name — it did not solve the problem of collecting money damages awarded as part of the judgment. It makes more sense to separate the contract for services from the domain name.

Although the Umbro and Virtual Works holding has a foothold in Virginia, however, it failed to convince courts in other jurisdictions. California quickly favored the property concept and as noted below it has also been rejected in Louisiana and Minnesota.

In the initial phase California courts grappled with conceptualizing domain names as property in the context of conversion. In Kremen the court concluded that domain name registrants have an intangible property right in them. This was so because a domain name is a defined interest that can be bought and sold. Indeed, “some domain names may constitute intellectual property, as visitors to the website begin to associate the domain name with the entity whose website is connected to that domain name.”

The Kremen analysis was accepted by the U.S. Bankruptcy Court in Baton Rouge In re Koenig & Assoc., LLC. 2004 WL 3244582 (Bkrtcy. M.D. La.). Koenig was a case in which an alleged assignment of corporate property for which there was evidence of value was void as a matter of law and returned to the Estate. The court held that under Louisiana law domain names are property: “Accordingly, the Court will grant judgment in the trustee’s favor declaring the domain name smartdisciline.com property of the LKA bankruptcy estate.”

The next steps after Kremen were also from the 9th Circuit. In Office Depot, Inc. v. Zuccarini, 621 F.Supp.2d 773, 778 (N.D. Cal. 2007), aff’d 596 F.3d 696 (9th Cir. 2010) the court held that defendant’s interest in domain names was garnishable: “[D]omain name[s] [are] subject to receivership in the district of domain name registrar.” It also held that “[D]omain name[s] [are] subject to receivership in the district of domain name registrar.” In GOPETS Ltd. v. Hise, Digital Overture, Inc., 657 F.3d 1024, 1032 (9th Cir. 2011) the court held that “[n]othing in the text or structure of the statute [ACPA] indicates that Congress intended that rights in domain names should be inalienable.” Alienability is a factor in determining that the something held by a domain name registrant is a property right not simply a contract for services (although one aspect of it is also that).

In Sprinkler Warehouse plaintiff had domesticated a default judgment obtained in Texas. The district court relying on Umbro held that the website and domain name did not constitute property subject to garnishment under Minnesota law. The Court of Appeals disagreed:

In contrast to the Umbro court, we hold here that a domain name is a form of property and we conclude that a domain name may be categorized both as property and as a contract for services, a domain name nevertheless qualifies as property subject to garnishment under [Minnesota law].

Conclusion

The Dorer court was concentrating on the particular domain name in issue in the infringement case which is the  self-help procedures provided in the NSI registration contract was the more practical way of resolving the issue. In Umbro the court was faced with a different issue, domain names that were not implicated in the infringement action but haveing asset value that could be sold to satisfy the money judgment. Whether Virginia would still rule that domain names are not garnishable now after fifteen years of experience is an open question. The Sprinkler Warehouse ruling in favor of garnishment is certainly more realistic in recognizing that domain names have an independent existence from contracts of service and, as such, are attachable assets.

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