A Virgina federal judge has ruled that domain names are not property under Virgina Law.
The case is ALEXANDRIA SURVEYS, LLC, , v. ALEXANDRIA CONSULTING GROUP, LLC, (ACG) Civil Action No. 1:13-CV-00891, United States District Court, E.D. Virginia, Alexandria Division and was handed down by District Judge LIAM O’GRADY
The case was an appeal from a Bankruptcy court decision, which involved a lot of issues, but we are going to limit our review of the case only as it applied to disucssion related to the the domain name of Alexandria LLC, ALEXANDRIASURVEY.COM, which was ordered by the Bankruptcy Court to be sold to paythe creditors.
The Debtor argued that the domain name and phone numbers sold to ACG at auction were not the debtor’s property, and therefore could not be properly sold as part of the bankruptcy estate.
“Appellant further argues that even if the sale of Alexandria International’s assets to ACG was valid, the sale of the web address and telephone numbers was improper because neither were the property of the bankruptcy estate (and therefore neither could be sold by the trustee).“
“The property of the bankruptcy estate is defined in 11 U.S.C. § 541(a)(1) as “all legal and equitable interests of the debtor in property as of the commencement of the estate.”
With respect to the status of telephone numbers, there is a split of authority among the circuits. The Ninth Circuit and the Second Circuit have specifically held that a trustee lacks the right to distribute a telephone number as property of the estate, see Rothman v. Pacific Tel. & Telegraph Co., 453 F.2d 848, 849-50 (9th Cir. 1971); Slenderalla Sys. of Berkeley, Inc. v. Pacific Tel. & Telegraph Co., 286 F.2d 488, 490 (2d Cir. 1961), while the First and Fifth Circuits have taken the opposite position, see Darman v. Metropolitan Alarm Corp., 528 F.2d 908, 910 n.1 (1st Cir. 1976); In re Fontainebleau Hotel Corp., 508 F.2d 1056, 1059 (5th Cir. 1975).[2]
Although the Fourth Circuit has not specifically addressed this issue, it is well-settled that the contours of the property interests assumed by the trustee are determined by state law. Butner v. United States, 440 U.S. 48, 48-49 (1979).
Accordingly, Appellant cites the Virginia Supreme Court’s relatively recent decision in Network Solutions, Inc. v. Umbro International, Inc. for the proposition that a judgment debtor has no property right in its telephone numbers and web address.
In Network Solutions, the Virginia Supreme Court held that a web address and telephone number could not be garnished by a judgment creditor because the debtor lacked a property interest in them. 529 S.E.2d. 80, 86-87 (Va. 2000) (stating that “a domain name registrant acquires the contractual right to use a unique domain name for a specified period of time” and that a domain name is not personal property, but rather “the product of a contract for services”).
In the absence of controlling Fourth Circuit precedent, this Court refers to Network Solutions to define a debtor’s property interest in its web address and telephone numbers in Virginia.
Although ACG argues that Network Solutions is distinguishable because it relates to a garnishment proceeding rather than a bankruptcy, the garnishment context does not change the Network Solutions court’s holding that the use of a domain name is a “contractual right” that does “not exist separate and apart from [the provider]’s services that make the domain names operational Internet addresses.”
While telephone numbers and web addresses are important branding tools and certainly have value to those who use them, that subjective value does not equate to ownership under Virginia law.
The Virginia Supreme Court confirmed in Network Solutions that neither telephone numbers nor domain names were garnishable personal property because “neither one exists separate from its respective service that created it.”
Therefore, because Virginia does not recognize an ownership interest in telephone numbers and web addresses, neither were property of Alexandria International’s estate and neither were subject to sale by the trustee (nor would they be subject to sale in any future proceeding).
Furthermore, even if Alexandria International did have possessory interests in the use of the telephone numbers and web addresses, those interests were the product of executory contracts with Cox Communications that were irrevocably rejected by the trustee before the estate was reopened.
The telephone and web hosting contracts were scheduled on Schedule 0, titled “Executory Contracts.”
It is undisputed that the trustee did not assume the contracts with Cox within the time required by the statute.
Thus, even if Alexandria International had an intangible property interest in the web address and telephone numbers, that interest was abandoned when the trustee failed to assume the service contracts.
Because Alexandria International’s estate had no property interest in the phone numbers and web address (or, at most, had a contractual interest in them that the trustee failed to assume), neither could be sold as part of Alexandria International’s bankruptcy estate.”
So Michael-
This means a domain name is just like a phone number – if you get sued and lose the plaintiff cannot take your phone number as part of the assets and therefore cannot take your domain.
but what does this say about using domains as assets on tax returns
Good news for deadbeats: debt collectors cannot take your domains to pay your debt. They are safe from any bankruptcy as “contractual rights”. They cannot be taken away by your estranged wife in a bitter divorce either!
*Roll eyes*
Seriously, this is not how it’s supposed to be. What is your opinion on this, Mike?
what a big mess
This is nothing new. Virginia State and Federal Courts have been holding that domains are NOT property for at least 10 years. Fortunately, California doesn’t see it that way. In the Sex.com case, the 9th Circuit specifically held that domains ARE property. And the debate goes on.
UDRP’s & trademarks are on further shaky grounds with type of reasoning.
If ABC.com is not property, but a contractual arrangement, how can anyone claim rights to it?
This is of course based on Virgina law
What I have always contemplated is a domain “owner” actually owns a perpetual lease on a property (domain) owned by the central registry and as long as you renew your lease (domain renewals) every year – you maintain 100% control of the domain. So if a court orders a lease to be broken – does the domain go back to the central registry or does it order that the winner in a civil action has the right to take over the lease.
Say walmart sues Kmart for some reason and wins and KMart has to close some store for antitrust or some other reason – does Walmart take over the lease on the ground those stores are built on ?
Could be argued as a property tax similar to that of a real estate based asset such as a home.
This is what happens when there are no consistent federal laws go govern these matters. Because bankruptcy is an administrative court, and because the technology is so new, domains are being examined in the light of what the court, from a legal standpoint, views as a technological precedent, and that is telephone numbers.
The federal courts do a “look down” to state law when there is no federal title to govern an issue, which is why we currently have competing rulings. Typically, when this happens at the level of a state’s own appeals courts, if I’m not mistaken, the issue then could compel a hearing before a state supreme court.
The question then becomes, at what point will all of these competing rulings result in a case going before the SCOTUS?
Or is my understanding of this convoluted mess just an illusion on my part? LOL!
As Howard notes, this is simply nothing new in Virginia, but I do not understand use of the word “fortunately” with reference to California federal courts (as the CA state court never answered the certified question in the sex.com case).
It is an article of religious faith among some domainers that the world would magically be a better place if domain names were, for all purposes, property.
Okay, let’s have a show of hands:
How many of you want:
1. To pay sales and transfer taxes on this “property” when it is bought and sold?
2. To have them be considered marital assets during a divorce?
3. To have them subject to liens?
If the states of Arizona, Florida, or Virginia got wind of the notion that GoDaddy, Moniker and Netsol have been selling goods all these years without paying the applicable sales tax on them, then rest assured, they are going under.
I’ve been at this for coming up on 20 years, have seen a lot of domain disputes of all shapes and sizes, and have NEVER found myself wringing my hands and saying, “Gee, I wish these things were property”. Even the sex.com case could have reached the correct result on an alternative legal theory. But it became a big issue there because the plaintiff got married to a conversion theory. In other words, it was only important because of the way the case was framed from the get-go. Have hi-jacked domain situations been rectified in other jurisdictions without introducing a property shibboleth? Yes indeed they have.
“at what point will all of these competing rulings result in a case going before the SCOTUS?”
It’s hard to imagine a situation which would compel that. Every domain registration contract – and that’s what you have, a contract with a registrar – specifies the jurisdiction in which that contract is made. Do states differ on matters of contract interpretation? Sure. Does it require a Supreme Court ruling to sort out? No.
When you register a domain name with GoDaddy, you have a contract that is, by its own terms, going to be construed in accordance with Arizona law. When you have a contract with Moniker, it is going to be construed in accordance with Florida law. There is no US Supreme Court, present or future, which is going to say “From now on, we’re going to invent a federal rule which is going to govern how a contract with express jurisdictional terms is going to be interpreted and applied in any of the 50 states, DC, Puerto Rico, Guam, US Virgin Islands, Northern Marianas, and American Samoa”. Not. Gonna. Happen.
It would require an act of federal legislation – from a Congress that passed something like 49 bills so far – for the extraordinary purpose of solving a “problem” that doesn’t exist except as an article of religious faith among domainers.
As to the question above, a contract to receive a service is as transferable and subject to claims of rights as is anything else. Have you ever bought or sold an airline ticket? There are no “goods” at the other end of that contract. I have a coupon from USAirways that will entitle the bearer to have his or her carcass hauled for 1000 miles. I’ll sell it to you if you like, but the act of hauling your carcass is not “property”, nor is the right to receive said carcass-hauling a form of “property”.
“Or is my understanding of this convoluted mess just an illusion on my part?”
It’s largely a pointless discussion either way. Unless we all want to mess with domainers’ heads and get down to the fundamental that the word “property” itself doesn’t mean any one particular thing at law anyway, but is a bundle of different kinds of rights and interests. Some things have part of that bundle, and some things don’t, which is why any particular thing might be treated “as” property in one context but not as property in another context, which is why more often we might refer to a right of some kind as a “property interest” – like those ones with the weird names nobody can remember from common law such as the right to have your pigs eat acorns on some piece of land.
The debate itself is typically an enormous circle jerking waste of time.