Recent Ruling May Put Dent In Ability of Government to Seize Domain Names

by Ifrah PLLC
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A November 2013 ruling from the United States District Court in a bankruptcy case may create an obstacle for a tactic increasingly popular among federal prosecutors – the seizure of a defendant company’s domain name.

The statutes permitting civil and criminal forfeiture in U.S. District Courts – Title 18, United States Code Sections 981 and 983, respectively – both authorize seizure of “property.”  In a number of prominent (and not so prominent) cases, federal prosecutors have seized a defendant company’s domain name, which may shut down the company’s operations during the pendency of the case.  But it does not appear that any Court has squarely considered, in a forfeiture context, whether a domain name constitutes “property” that may be seized and forfeited.

Alexandria Surveys, LLC v. Alexandria Consulting Group, LLC, Civil Action 1:13—CV-00891, Bankr. Case No. 10-11559-BFK, was not a forfeiture case, but it may have set the table for a forfeiture defendant to argue successfully that a domain name may not be seized.  In Alexandria Surveys, the District Court reviewed a ruling in the Bankrupcty Court relating to the sale of certain assets previously belonging to the debtor.   In the case, the debtor argued, among other things, that the sale of the debtor’s 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.

In considering the issue, the Court noted a split in the Circuits as to whether a telephone number constitutes property of an estate.   Compare Rothman v. Pacific Tel. & Telegraph Co., 453 F.2d 848, 849-50 (9th Cir. 1971) (trustee lacks right to distribute telephone number as property of the estate); Slenderalla Sys.of Berkeley, Inc. v. Pacific Tel. & Telegraph Co., 286 F.2d 488, 490 (2d Cir. 1961) (same) withDarman v. Metropolitan Alarm Corp., 528 F.2d 908, 910 n.1 (1st Cir. 1976) (permitting trustee to distribute telephone number as property of estate); In re Fontainebleau Hotel Corp., 508 F.2d 1056, 1059 (5th Cir. 1975) (same).

The Court observed that, while the Fourth Circuit Court of Appeals has not yet addressed the issue, state law determines the contours of property interests assumed by the trustee.  In that regard, the Court noted the Virginia Supreme Court’s relatively recent decision in Network Solutions, Inc. v. Umbro International, Inc., 529 S.E.2d 80 (Va. 2000), in which that court specifically held, in the context of a garnishment action, 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 at 86-87.The court held that a domain name registrant acquires the contractual right to use a unique domain name for a specified period of time, and that the domain name is not property, but rather, “the product of a contract for services.”  Id.  Without diminishing the importance and significance of web addresses and domain names, the Alexandria Surveys court followed the holding in Network Solutions that they did not constitute “property.”

While Alexandria Surveys did not deal specifically with the law of forfeiture, the holding that domain names do not constitute property has significant implications for civil and criminal forfeiture cases.  The case is not binding on other courts, but given the paucity of precedent characterizing domain names, this analysis may be viewed as instructive by courts considering claimants’ and defendants’ challenges to domain name seizures.  And a shift in the law that did not permit those seizures would deprive the government of a significant piece of leverage that it now wields in many cases.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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