by admin » Fri Jun 13, 2014 1:36 am
THE IMPORTANCE OF BEING FIRST IN LINE
The cornerstone of Gary’s claim to ownership of Sex.Com was a simple principle known to every schoolchild– he was first in line. This principle is universally used to distribute benefits in a civilized society, and NSI had used it to distribute domains. If being first in line meant nothing, or if it could be overridden by theft, we were on the way to anarchy. Well aware of its importance, judges have boiled it down to a pithy aphorism -- “First in time, first in right.” The principle had often been applied to real estate and water rights, as in Yuba River Power Company, where the California Supreme Court held that the first person to register a water right owned the right, over and against a claim jumper who dug a ditch upstream from the original claimant’s point of diversion. Yuba River was an old case, though, dating back to the early days of California law, and no court anywhere had applied its holding to the registration of Internet domains, so the argument was far from certain to prevail. Still, as principles go, it was among the most solid, and I was determined to stake the case on it. Our entire system of resource allocations was built on it, so whenever anyone asked me why Gary should win the case, I had my answer ready -- he was first in line.
Katie Diemer had filed three complaints, and seen all three dismissed. She had adequately articulated Gary’s status as the first to register, but that alone was insufficient. We had to argue that by being “first in time,” Gary had become “first in right,” to hold the registration of Sex.Com. A magic word was required, and that magic word was “property.” Being first in line had given Gary property rights in Sex.Com, something that Katie’s complaints had never specifically alleged, even though the newspapers were daily announcing domains selling for large amounts of money. Wallstreet.Com had sold for $1 Million, and Business.Com for $7.5 Million.
This part of the argument was well supported by California law, that defines property as “everything capable of being owned.” Sex.Com was obviously capable of being owned, and the owner had the power to control the most popular webpage on the Net. The way I saw it, Sex.Com was a property magnet, drawing in other pieces of property in the form of credit card subscriptions to Internet pornography, bringing in $24.95/month. Sex.Com was a node, an in-drawing spiral galaxy of credit transactions generating a white hole of cash that was gushing into Cohen’s pockets. In June 1999, Cohen put out a press release that stated:
“Sex.Com boasts over 9-Million members who pay $24.95 per month for access to the world’s largest sex-related Internet site, which receives more than 146-Million unique ‘hits’ daily. Advertisers on the 1,000-page-deep porn site pay up to 1.5 Million monthly to display their banners. For premium ad space, there is a waiting list of over one year.”
You do the math. That’s a lot of money for a country boy. The way I saw it, all of those credit card transactions were Gary’s property. It’s an old principle in property law that property owners hold not just the rights to the property itself, but all “appurtenant” rights. In other words, you don’t just own the cow, you have a right to the milk. So if property is wrongfully taken, the owners should receive “restitution” of everything that was lost -- not just the cow, but all of the milk the thief got from her while they were deprived of possession. Why? Because any other rule would encourage people to steal, by allowing them to keep all the benefits produced during the time they held the property unlawfully.
This theory of restitution had not been emphasized in the prior complaints. However, it was very clear that under the California Unfair Business Practices Act, the court could order restitution of money wrongfully obtained.
Restitution was essential to Gary’s case, because it would have been impossible to show that Gary would have made anywhere near the money that Cohen made from operating Sex.Com. Cohen, after all, was a criminal, familiar with the adult industry and its profit potential. He knew the players, didn’t take crap from anyone, and made money with the ruthless effectiveness of a con man who wouldn’t know regret if it ran over him in the street. Cohen allowed some of the hardest core pornography to be shown on Sex.Com without even a cursory check to determine whether the user was an adult.
The theory of restitution says that if you let the people keep the profit they make from using stolen property, it will encourage people to steal, because they will get the value of the property for as long as they are able to hold on to it. To explain this better, I had a story. When I was a kid living in Valencia, Spain one summer, some guys stole the bus that ran from town to the beach. They operated the bus all day long, and collected all the fares. At the end of the day they were arrested. Do you think the judge just gave the bus back to the bus company and let the thieves keep the fares they collected? Of course not. The bus company owned the bus and the fares.
Pushing the property angle improved our claim against NSI. If Sex.Com was property, and Gary was the owner by virtue of being the first to register the domain name, then NSI should have some obligation to Gary to protect his property from being transferred to another person without his permission. Just as there had been a land rush on the American frontier, there had been a land rush in cyberspace. Gary had been an early prospector, who identified a valuable claim and staked it. NSI had been hired by the government to serve as the land office in cyberspace. When Gary recorded his registration, NSI assumed a duty to dispose of that property only according to his wishes, because he had sole authority over it as the owner.
These rules of law go back a long ways. It is well established that if you leave personal property with someone to take care of, such as a horse or a saddle, they have a duty to take care of it for you. This makes you the “bailor,” and the person receiving your property the “bailee.” When someone performs a bailment for pay, that is called a “bailment for consideration,” and if the bailee mistakenly gives the property to the wrong person, they are responsible for conversion of the property. Liability for conversion is pretty much absolute. According to California case law, a parking lot attendant that gave a parked car back to a passenger to drive was responsible for conversion when the passenger crashed the car. It was no defense for the parking lot that the attendant was perhaps reasonable in releasing the car to the passenger. The terms of the bailment were that it should only be released to the person who deposited the car and had the ticket. The passenger did not have the ticket.
Significantly, in our case, neither did Cohen. NSI had granted Cohen authority that only Gary had. Gary created the domain name by thinking it up, deposited it with NSI for safekeeping by registering it, and as the administrative contact, was the only person with a right to change the registration.
Nevertheless, Katie had not pled a claim for conversion against NSI. Perhaps she thought that in order to be liable for conversion, NSI had to show some intent to convert the property, or some desire to join with Cohen’s wrongful intent. Lawyers unfamiliar with the law of conversion are apt to make this mistake, but I had tried a case in Portland a few years earlier in which my clients were charged with conversion, and I knew it to be a claim that is deadly in its simplicity. The absence of wrongful intent is no defense if the property was someone else’s, and it was taken without authority.
NSI had been well aware of the dangers that lay down the path if they ever admitted that domain names were property. NSI having been in the Internet business a lot longer than I, had firmly taken the position that domain names are not property. In a series of judicial decisions, NSI had gotten judges to agree that domain names were more like toll-free telephone numbers, which could also be arranged to read “1-800-Sue-Them.” Users of 800-numbers had lost the battle to establish 800 numbers as property long ago, and NSI had been pushing the analogy ever since. NSI suffered a brief setback when a Virginia judge found that domain names could be seized by creditors to satisfy a money judgment. However, a year later the Virginia Supreme Court reversed the decision, finding a domain name to be more like a telephone number than an item of personal property. Strangely enough, in mid-2000, NSI began appropriating and auctioning off the domain names of registrants who had failed to pay their registration fees. This seemed an awful lot like seizing property to satisfy a debt, but who am I to judge?
Indeed, it would be for Judge Ware to decide, and I was not excited by the prospect of going toe-to-toe with NSI over the property issue. Even as news stories heated up the environment with stories about domain names selling for five and six figures, I was acutely aware that the temperature in the courthouse was a few degrees lower.
I hit the books hard for days on end, digging through case law for rulings that would help us out. I found a few. In addition to Yuba River establishing a property interest in being the first to register a water right, there was Kalitta Flying Services, that determined engineering drawings were property subject to conversion. And there was Thrifty-Tel v. Bezenek, a case the judges grappled with the interface of technology and law in a case that could only come out of California.
Thrifty-Tel was a phone company that sued two kids who had tried to gain free long-distance access by staging a brute force attack -- firing huge numbers of random passwords–at Thrifty-Tel’s computer. The clumsy hack slowed the long distance system down considerably, which Thrifty-Tel alleged as damages in a suit for trespass. On appeal, a verdict for Thrifty-Tell on conversion was upheld, and the court explained that the cyberattack was a “trespass to chattels,” for which damages could be awarded. The kids had trespassed because each random number was a physical thing, an electron packet, trespassing on Thrifty-Tel’s computer. Since the computer was an item of personal property, not a parcel of real estate, what had happened was actually a “trespass to chattels.” The last time I heard about chattels was in the Taming of the Shrewby Shakespeare, when the husband tells his unruly wife that she is but a chattel. A more concrete example of trespass to chattels would be someone borrowing and returning a delivery-man’s bicycle. But here was the California appellate court, exhuming this ancient cause of action out of dusty books that no one had opened in a long time.
The court had gone back to the future to find a cybertort to fit the need of the day. Further research showed that trespass to chattels had turned out to be a handy cybertort. Intel deployed it successfully to prevent a disgruntled former employee from spamming Intel workers with negative information about the company. Judge Whyte in the San Jose courthouse had ruled in Intel’s favor in that case.
I agreed with the court’s conclusion in Thrifty-Tel v. Bezenek that random numbers are really packets of electrons, and that bombarding someone’s computer system is a physical invasion. I questioned Gary about how the Internet worked, forcing him to provide facts about the engineering and architecture of the system. Again and again I looked at the maps of the domain name servers, the long lines making a net over the globe, imagining the flows of communication as concrete data packets moving through telephone wires, fiber optic cables, Cisco routers, Sun servers, and into the offices, dens and garages of the world. I saw the faces of all those net-heads out there, basking in the monitor’s glow as they journeyed through cyberspace, the artificial world that we had created.
I’ve been reading science fiction since I was a kid, and still have my original paperback copy of William Gibson’s Neuromancer, where the word “cyberspace” first appeared in print. I knew that what happened to Sex.Com in this lawsuit was going to make a mark on the face of the Internet. Given the way that porn had taken to the Net, Sex.Com was obviously the world’s most valuable Internet domain name. Since value is a characteristic of property, the more valuable something is, arguably, the more likely it is to become property. Being the most valuable domain, Sex.Com presented the best-case scenario for a judicial finding that domain names are in fact property. The eyes of the world would be upon this case. Indeed, they already were.
The case had garnered major tech-media attention when Wired.Com published Craig Bicknell’s The Sordid Saga of Sex.Com just before Gary and I met. The article was favorable to Gary’s position, while expressing appropriate skepticism for what looked like a long shot. We wanted to maintain that buzz, and a good way to get more publicity about a lawsuit is to send copies of the complaint to reporters. So you want the complaint to be interesting, lively, informative, hell, well-written! Under California law, anything you say in a complaint is absolutely privileged, which means it cannot be the basis for a defamation lawsuit, even if absolutely false. So your complaint can be the basis of a news article about all the claims you have alleged. The complaint told the story of the origin of the Internet itself, Cohen’s criminality, his use of the forged letter to steal Sex.Com, and the fabulous wealth that was now flowing his way as the result of the theft. Following the lead established by Thrifty-Tel v. Beznick, I concretized everything. I described all of the electronic credit card transactions that were happening via Sex.Com as “data packets” that were appurtenant property of Sex.Com. I emphasized the relationship, as it were, between the milk and the cow.
I charged NSI with conversion on two grounds: first, that NSI was the bailee of Sex.Com for the benefit of Kremen, the bailor. Second, I alleged that NSI and Cohen had conspired to convert the Sex.Com domain name. This second allegation had a reasonable basis in fact, because Cohen had been quoted as saying that he had a “girlfriend at NSI,” who could get him any domain name he wanted. Gary had heard this from Lee Fuller, an adult website operator who had a cubicle next to Cohen’s at Midcom Corporation in 1995, when Cohen faxed the forged letter to NSI.
To strengthen our claims against Cohen, I built up the California Unfair Business Practices claim. This claim arises under California Business & Professions Code § 17200, a mainstay of California business tort law. This is a very broad statute that basically makes it unlawful to do anything unlawful. I’m not kidding. If you can find anything else unlawful that a defendant did, in a business context, you can probably also make a claim under California Business & Professions Code § 17200. And under that law, the court can grant you all kinds of fantastic relief. The court can order the disgorgement of unlawful profits. The court can grant attorney’s fees, and punitive damages. The only thing the court can’t give you is a jury trial on that claim. But that’s a small price to pay for all the other benefits.
Unfortunately, Cohen had scored an effective hit against the Unfair Business Practices claim, when he convinced Judge Ware that Gary had to allege some sort of injury to “consumers” in order to state an Unfair Business Practices claim. This was simply incorrect, but Katie had failed to counter it in her opposition to the motion to dismiss, and the judge had gone along with Dorband’s argument, dismissing the claim. I didn’t want to fly straight back through the opposition of the court’s prior ruling, and thus decided I had to allege some consumer injury resulting from Cohen’s operation of Sex.Com. So, I took a look at the Sex.Com site, clicked on the banners found there, and learned what I needed to know. Like other porn operators, the advertisers on Cohen’s site were engaging in mousetrapping, which causes a single click on the banner to trigger a sneaky bit of coding that commandeers your browser and funnels you into an endless loop of advertising banners from which there is no exit except to shut off your computer. After a mousetrapping session, your hard-drive needs a shower, and it is usually a good idea to delete all the temporary Internet files and reboot. You should run one of those pop-up purging programs, so that no innocent member of your family will be exposed to graphic sexual content. That sounded like consumer injury to me. Since it was common knowledge that the pornography site operators would often elicit and resell information such as birthdates, email addresses and credit information, I alleged this as a source of consumer injury. Finally, I alleged that Cohen was inflating advertising rates at Sex.Com by circulating inflated traffic figures via press releases. This qualified as consumer injury, because pornography sites are consumers of advertising.
I also gave the breach of contract claim against NSI an injection of steroids. This claim looked anemic, because the only documents that you could call a contract were the email registration from Gary and his certified mailing of the printout. Gary hadn’t paid to register Sex.Com, because registration was free. Any lawyer would look at it and say, “where’s the consideration?” When talking contracts, consideration doesn’t mean good manners, but rather Gary’s payment of something having value. If you don’t have to pay for your contractual rights, you don’t get any. Consideration can be as little as “a peppercorn,” but it must be there. In Gary’s case, I’d found a peppercorn of value. Although Gary hadn’t paid for the privilege of registering Sex.Com, he had surrendered personal information -- his name, phone number, email and home address. He thus became one of the ever-increasing database of domain name registrants that NSI’s initial public offering prospectus touted as a source of continuing value. Free registrations came swiftly to an end in mid-1995, and the registrants’ payment of fees became part of a swelling juggernaut of financial benefit that converted NSI into a stock market darling on the strength of registration revenue alone.
When you write a complaint alleging unusual facts that don’t fit the mold of past cases, you have to engage in imaginative pleading. To get past the complaint stage, you must recite the legal formula and confidently assert the things you hope to prove. It takes a lot of legal research and careful writing. In the four days before the filing, I spent about fourteen hours a day at the USF law library, leaning over my laptop, smelting down ideas and forging them into arguments. Pounding facts and law together, I felt like Vulcan hammering in his forge, tempering and sharpening his weapons. An argument is a pointy thing, and the point always goes toward your enemy. The sharpness of the point is comforting to him who holds the spear.
The third amended complaint ran to 43 pages. As it developed, I shared the progress with Gary. We talked over the cell phone during the day, and back at his apartment we’d go over revisions in the evening. You can only convince a client that you are sincere by actually doing the job, and I was doing it. My only problem was that my 43 page opus kept needing further revisions. The time to get the final filing together was fast approaching. And computers can always tell when you’re nervous, can’t they?
