March 8, 2001 4:00 AM PST

Sex.com Web address battle returns to court

One of the most lucrative domain names on the Internet will take center stage in San Jose, Calif., this week as a bizarre battle over Sex.com returns to court.

The dispute focuses on the marquee domain name, which plaintiff Gary Kremen registered in 1994 and claims was stolen from him by defendant Stephen Cohen.

Last November, U.S. District Judge James Ware, without blaming Cohen, determined that the domain name had been obtained fraudulently and returned Sex.com to plaintiff Kremen.

Now Kremen is going back to court seeking $43 million as retribution for the five years he was unable to generate revenue from the domain name.

"If someone steals your cab and drives around collecting fares from it, legally they do not get to keep the proceeds," said Tim Fox, one of Kremen's attorneys with the firm Kerr & Wagstaffe. "Stephen Cohen stole Gary Kremen's cab and used it for five years, and now we're asking for the fares back."

Stephen Cohen's attorney, Robert Dorand, did not return repeated phone calls seeking comment.

The history of Sex.com
The story surrounding Sex.com begins with Gary Kremen, a 37-year-old San Francisco entrepreneur who registered the domain name in 1994 while running another Internet business, Match.com. At that time--the year Netscape Communications was founded--the Internet was hardly used and few people thought of registering domain names.

Busy with other pursuits, Kremen did nothing with the domain name right away and let it languish. Soon afterward, Web address registrar Networks Solutions received a fraudulent letter stating that Kremen no longer wanted the domain name and authorized its transfer to Cohen.

Cohen acquired the name and built what the plaintiff's attorneys say was a multibillion-dollar business around it by hosting advertising and links to various other sex sites on the Internet.

"We allege that Steve Cohen was responsible for the letter," Fox said.

Pornography has proven to be the most lucrative e-commerce venture on the Internet, one that has remained strong even during the past year of dying dot-coms and slowing economy.

For his part, Cohen--an ex-convict who served time for bankruptcy fraud--and his attorney argued in court that he legitimately bought the domain name and operated a business around it. Ware ruled that since the document that caused the name to be sold was fraudulent, Sex.com should be returned.

Now with Sex.com back in Kremen's hands, the case is focused on who gets to keep the money earned from the site during those five years. Even if the judge rules in Kremen's favor, tracking down the cash may not be easy.

Cohen operates a number of off-shore bank accounts and has been charged by the plaintiffs with transferring money from his Sex.com venture into those accounts. Although Ware ruled in November that Cohen must place $25 million in a federal trust account, plaintiff attorneys say he has not yet done so.

In court, Kremen's attorneys will need to prove several points, including that Cohen participated in the fraud to acquire the domain name.

The outcome of the case not only will determine if Cohen is responsible, but also will help determine how the law views domain names--specifically, which of the laws governing property apply to them.

To rule that Kremen is entitled to money Cohen made from Sex.com, Ware will need to define Sex.com as property for purposes of a particular legal doctrine known as "constructive trust." The doctrine says that when an individual wrongfully obtains property and profits from it, he must return both property and profit.

Kremen's attorneys, however, face a potential hurdle. Earlier in the case, Ware ruled that Kremen could not sue Network Solutions on grounds that it let his property be taken. A domain name is not considered tangible property, Ware said.

Fox responded that this ruling applied to only a small slice of the law. "That argument exists," he said, "but we don't believe it's meritorious."

 

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