Kremen, unfortunately, has not had much luck collecting his judgment. The district court froze
Cohen's assets, but Cohen ignored the order and wired large sums of money to offshore
accounts. His real estate property, under the protection of a federal receiver, was stripped of all
its fixtures-- even cabinet doors and toilets--in violation of another order. The court
commanded Cohen to appear and show cause why he shouldn't be held in contempt, but he
ignored that order, too. The district judge finally took off the gloves--he declared Cohen a
fugitive from justice, signed an arrest warrant and sent the U.S. Marshals after him.
things started getting really bizarre. Kremen put up a "wanted" poster on the sex.com site with a
mug shot of Cohen, offering a $50,000 reward to anyone who brought him to justice. Cohen's
lawyers responded with a motion to vacate the arrest warrant. They reported that Cohen was
under house arrest in Mexico and that gunfights between Mexican authorities and would-be
bounty hunters seeking Kremen's reward money posed a threat to human life. The district court
rejected this story as "implausible" and denied the motion. Cohen, so far as the record shows,
remains at large.
Given his limited success with the bounty hunter approach, it should come
as no surprise that Kremen seeks to hold someone else responsible for his losses. That someone
is Network Solutions, the exclusive domain name registrar at the time of Cohen's antics. Kremen
sued it for mishandling his domain name
The court agreed that sex.com was Kremen's
property. It concluded, though, that it was intangible property to which the tort of conversion
does not apply. Id. at 1173. The conversion by bailee claim failed for the additional reason that
Network Solutions was not a bailee. Id. at 1175.
Kremen's conversion claim is another
matter. To establish that tort, a plaintiff must show "ownership or right to possession of property,
wrongful disposition of the property right and damages." G.S. Rasmussen & Assocs., Inc. v.
Kalitta Flying Serv., Inc., 958 F.2d 896, 906 (9th Cir. 1992). The preliminary question, then, is
whether registrants have property rights in their domain names. Network Solutions all but
concedes that they do. This is no surprise, given its positions in prior litigation. See Network
Solutions, Inc. v. Umbro Int'l, Inc., 529 S.E.2d 80, 86 (Va. 2000) ("[Network Solutions]
acknowledged during oral argument before this Court that the right to use a domain name is a
form of intangible personal property."); Network Solutions, Inc. v. Clue Computing, Inc., 946 F.
Supp. 858, 860 (D. Colo. 1996) (same). The district court agreed with the parties on this issue,
as do we.
Kremen therefore had an intangible property right in his domain name, and a jury
could find that Network Solutions "wrongful[ly] dispos[ed] of" that right to his detriment by
handing the domain name over to Cohen. Id. at 906. The district court nevertheless rejected
Kremen's conversion claim. It held that domain names, although a form of property, are
intangibles not subject to conversion. This rationale derives from a distinction tort law once drew
between tangible and intangible property: Conversion was originally a remedy for the wrongful
taking of another's lost goods, so it applied only to tangible property. See Prosser and Keeton on
the Law of Torts § 15, at 89, 91 (W. Page Keeton ed., 5th ed. 1984). Virtually every jurisdiction,
however, has discarded this rigid limitation to some degree. See id. at 91. Many courts ignore or
expressly reject it. See Kremen, 325 F.3d at 1045-46 n.5 (Kozinski, J., dissenting) (citing cases);
Astroworks, Inc. v. Astroexhibit, Inc., 257 F. Supp. 2d 609, 618 (S.D.N.Y. 2003) (holding that
the plaintiff could maintain a claim for conversion of his website); Val D. Ricks, The Conversion
of Intangible Property: Bursting the Ancient Trover Bottle with New Wine, 1991 B.Y.U. L. Rev.
1681, 1682. Others reject it for some intangibles but not others. The Restatement, for example,
recommends the following test:
(1) Where there is conversion of a document in
which intangible rights are merged, the damages include the value of such rights. Restatement (Second) of Torts § 242 (1965) (emphasis added).
An intangible is "merged" in a document when, "by the appropriate rule of law, the right to the
immediate possession of a chattel and the power to acquire such possession is represented by
[the] document," or when "an intangible obligation [is] represented by [the] document, which is
regarded as equivalent to the obligation." Id. cmt. a (emphasis added). The district court applied
this test and found no evidence that Kremen's domain name was merged in a document.
who effectively prevents the exercise of intangible rights of the kind customarily merged in a
document is subject to a liability similar to that for conversion, even though the document is not
court assumed that California follows the Restatement on this issue. Our review, however,
revealed that "there do not appear to be any California cases squarely addressing whether the
'merged with' requirement is a part of California law." Kremen, 325 F.3d at 1042. We invoked
the California Supreme Court's certification procedure to offer it the opportunity to address the
issue. Id. at 1043; Cal. Rules of Court 29.8. The Court declined, Kremen v. Cohen, No. S112591
(Cal. Feb. 25, 2003), and the question now falls to us.
We conclude that California does not
follow the Restatement's strict merger requirement. Indeed, the leading California Supreme
Court case rejects the tangibility requirement altogether. In Payne v. Elliot, 54 Cal. 339 (1880),
the Court considered whether shares in a corporation (as opposed to the share certificates
themselves) could be converted. It held that they could, reasoning: "[T]he action no longer exists
as it did at common law, but has been developed into a remedy for the conversion of every
species of personal property." Id. at 341 (emphasis added). While Payne's outcome might be
reconcilable with the Restatement, its rationale certainly is not: It recognized conversion of
shares, not because they are customarily represented by share certificates, but because they are a
species of personal property and, perforce, protected. Id. at 342.
In short, California
does not follow the Restatement's strict requirement that some document must actually represent
the owner's intangible property right. On the contrary, courts routinely apply the tort to
intangibles without inquiring whether they are merged in a document and, while it's often
possible to dream up some document the intangible is connected to in some fashion, it's seldom
one that represents the owner's property interest. To the extent Olschewski endorses the strict
merger rule, it is against the weight of authority. That rule cannot be squared with a jurisprudence
that recognizes conversion of music recordings, radio shows, customer lists, regulatory filings,
confidential information and even domain
Assuming arguendo that California
retains some vestigial merger requirement, it is clearly minimal, and at most requires only some
connection to a document or tangible object--not representation of the owner's intangible
interest in the strict Restatement sense.
Kremen's domain name falls easily within this class
of property. He argues that the relevant document is the Domain Name System, or "DNS"--the
distributed electronic database that associates domain names like sex.com with particular
computers connected to the Internet. We agree that the DNS is a document (or perhaps more
accurately a collection of documents). That it is stored in electronic form rather than on ink and
paper is immaterial. See, e.g., Thrifty-Tel, 46 Cal. App. 4th at 1565 (recognizing conversion of
information recorded on floppy disk); A & M Records, 75 Cal. App. 3d at 570 (same for audio
record); Lone Ranger Television, 740 F.2d at 725 (same for magnetic tape). It would be a curious
jurisprudence that turned on the existence of a paper document rather than an electronic one.
Torching a company's file room would then be conversion while hacking into its mainframe and
deleting its data would not. That is not the law, at least not in California.
The DNS also
bears some relation to Kremen's domain name. We need not delve too far into the mechanics of
the Internet to resolve this case. It is sufficient to observe that information correlating Kremen's
domain name with a particular computer on the Internet must exist somewhere in some form in
the DNS; if it did not, the database would not serve its intended purpose. Change the information
in the DNS, and you change the website people see when they type "www.sex.com."
The district court supported its contrary holding with several policy rationales, but none is
sufficient grounds to depart from the common law rule. The court was reluctant to apply the tort
of conversion because of its strict liability nature. This concern rings somewhat hollow in this
case because the district court effectively exempted Network Solutions from liability to Kremen
altogether, whether or not it was negligent. Network Solutions made no effort to contact Kremen
before giving away his domain name, despite receiving a facially suspect letter from a third party.
A jury would be justified in finding it was unreasonably careless.
We must, of course, take
the broader view, but there is nothing unfair about holding a company responsible for giving
away someone else's property even if it was not at fault. Cohen is obviously the guilty party here,
and the one who should in all fairness pay for his theft. But he's skipped the country, and his
money is stashed in some offshore bank account. Unless Kremen's luck with his bounty hunters
improves, Cohen is out of the picture. The question becomes whether Network Solutions should
be open to liability for its decision to hand over Kremen's domain name. Negligent or not, it was
Network Solutions that gave away Kremen's property. Kremen never did anything. It would not
be unfair to hold Network Solutions responsible and force it to try to recoup its losses by chasing
down Cohen. This, at any rate, is the logic of the common law, and we do not lightly discard it.
The district court was worried that "the threat of litigation threatens to stifle the registration
system by requiring further regulations by [Network Solutions] and potential increases in fees."
Kremen, 99 F. Supp. 2d at 1174. Given that Network Solutions's "regulations" evidently allowed
it to hand over a registrant's domain name on the basis of a facially suspect letter without even
contacting him, "further regulations" don't seem like such a bad idea. And the prospect of higher
fees presents no issue here that it doesn't in any other context. A bank could lower its ATM fees
if it didn't have to pay security guards, but we doubt most depositors would think that was a good
The district court thought there were "methods better suited to regulate the vagaries of
domain names" and left it "to the legislature to fashion an appropriate statutory scheme." Id. The
legislature, of course, is always free (within constitutional bounds) to refashion the system that
courts come up with. But that doesn't mean we should throw up our hands and let private
relations degenerate into a free-for-all in the meantime. We apply the common law until the
legislature tells us otherwise. And the common law does not stand idle while people give away
the property of others.
The evidence supported a claim for conversion, and the district court
should not have rejected it.