Dangerous Precedent

22 December 2008

Does a government or court have the right to seize a domain name when a Web site's activities are illegal where the government or court sits, but legal elsewhere?

This is the question raised in a recent Kentucky dispute over online gambling Web sites. Online gambling is legal in many places in the world, but illegal in the United States. Thus, the State of Kentucky -- in an effort to impede online gaming by state residents -- went to court to seize 141 domain names as a means of shutting down many popular online casinos. All of the domain-name owners likely reside out of state.

In October, Kentucky Judge Thomas Wingate held that Kentucky's seizure was lawful on the ground that the domain names were illegal "gambling devices" subject to Kentucky's anti-gambling laws. He reached that conclusion first ex parte (that is, without the presence of the site operators' attorneys) and then after a hearing. Judge Wingate thus ordered various domain name registrars to transfer ownership of the 141 domain names to Kentucky officials -- which will effectively shut down the Web sites, or at least deny potential users access to those sites via their popular domain names. To reach the conclusion that Kentucky had the power to seize the domain names, the judge had to make several logical leaps -- such as finding that the domain names were intangible property located in Kentucky.

Just last week, three judges on the Kentucky Court of Appeals heard oral argument in the case, which has the Internet world spinning. In the interim, the court of appeals has stayed the order, so the domain names will not be transferred to the state until and unless the court of appeals rules in the state's favor. The primary basis of the appeal is that the attempted seizure violates the United States Constitution and Supreme Court precedent, including the First Amendment, and the principle that states cannot interfere with commerce that is national or global.

In this column, I will discuss the lower court's ruling and why it is flawed.

The Kentucky Court's Ruling

Initially, Kentucky's Justice and Public Safety Cabinet filed its complaint in secret and under seal, obtaining an ex parte ruling before the gambling site operators had a chance to object. Then, some of the Web site operators sought to overturn the ruling at a Sept. 26 court hearing. Their attorneys contended, for example, that the court lacked jurisdiction over the seizure of their domain names because domains are merely contractual rights, rather than property. They also argued that because the domain names weren't physically located in Kentucky, Kentucky did not have authority to seize them.

The court found, however, that the domain names were intangible property, similar to software or a patent. Judge Wingate also held that the state had jurisdiction over the domain names because they were located in Kentucky in that they were virtual casinos which operated like physical ones -- inside Kentucky. Finally, Judge Wingate held that the domain names themselves were illegal gambling devices. A Kentucky statute provides that illegal "gambling devices" in Kentucky are subject to forfeiture, and defines a "gambling device" as a tangible device manufactured and designed specifically for gambling.

Judge Wingate's interpretation of the statute is thus questionable on two counts: The domain names are not tangible, and it is odd to call them "devices" for gambling in the sense that, say, a roulette table fits that definition. Yet Judge Wingate compared the domain names to "virtual keys for entering and creating virtual casinos from the desktop of a resident in Kentucky." He reasoned that the domain name is indispensable in maintaining the player's continuing access to the virtual casinos' "premises."

Judge Wingate did amend his earlier seizure order to exempt any online casino that employs geographic filtering tools to block Kentucky residents. However, as the domain name owners and Internet civil liberties groups have argued, it is very expensive and difficult to actually block sites from reaching different states or countries. In contrast, sites can effectively put disclaimers on their sites or attempt to block transactions by screening credit cards. Now, as noted above, the case is stayed pending appeal, so the domain names are currently still in the owners' possession.

Are Domain Names Property, and If So, Where Does that Property Reside?

There is no question as to what the right practical and constitutional answer is here: Domain names registered outside of Kentucky should not be considered to be property "present" in Kentucky. If so, any government anywhere in the world could seize the domain names of any site, thus blocking the site globally -- a grossly overbroad action when a government can block a site in its own country.

But what about the answer under Kentucky property law? Many courts have grappled with the issues of whether a domain name is a form of property or simply a contractual right to use a particular name to identify a certain internet protocol -- or I.P. -- address on the Web (similar to how a phone directory matches a name to a phone number).

To consider the issue, it is necessary to know a little more about how domain names work: The job of distributing domain names and keeping track of who controls them is delegated to registrars. There is only one "registry" for each top-level domain, including ".com". In turn, there are hundreds of registrars who sell domain names to the public. Registrars keep track of who has registered each name and for how long. Each registrar has its own contractual terms, which it applies to domain name registrations, and these vary greatly.

Several courts have held that a domain name is a form of intangible property. In 2003, for instance, the Court of Appeals for the Ninth Circuit issued a decision upon which Judge Wingate relied. In Kremen v. Cohen, plaintiff Gary Kremen sued registrar Network Solutions for conversion in connection with the domain name "sex.com," after a competitor had improperly obtained a transfer of the name away from Mr. Kremen using a forged letter provided to the registrar.

In Kremen, the Ninth Circuit confronted the issue of whether a domain name registration was a form of property that could be subject to conversion (that is, that could be illegally taken from its owner) under California law. The panel of judges -- in an opinion by Judge Alex Kozinski -- concluded that it was, indeed, a type of property and offered a three-part test: "[F]irst, there must be an interest capable of precise definition; second, it must be capable of exclusive possession or control; and third, the putative owner must have established a legitimate claim to exclusivity."

Some courts have followed suit; others have ruled differently. In Network Solutions Inc. v. Umbro International, the Virginia Supreme Court concluded that the holder of a domain name has a contract right, based on an agreement with a registrar, and held that domain names are not subject to garnishment under Virginia state law. It reasoned that "a domain name registration is the product of a contract for services between the registrar and registrant."

Did the Kentucky Court Have Jurisdiction over the Domain Names?

Even assuming that Judge Wingate (and Judge Kozinski, on whose opinion Judge Wingate relied) are right that a domain name is property, however, where is that property located?

The court in Kentucky v. 141 Domain Names invoked "in rem" jurisdiction -- that is, jurisdiction invoked basis on the location of the property (the "res," or thing) itself. (Neither the registrars nor the domain owners appear to be located in Kentucky.) Judge Wingate, in turn, held that in rem jurisdiction was proper here, because the gambling Web sites were accessible to persons located in Kentucky and allowed them to open accounts and to gamble. But this would mean that any online casino a Kentucky resident patronizes is deemed to be located in Kentucky -- and also that any online casino is deemed to be located (not just to do business) everywhere a single one of its users lives.

This logic seems deeply flawed. After all, Kentucky was not seeking to ban or fine the businesses that ran the Web sites for illegally doing business in Kentucky. It wanted to take their domain names on the ground that the domain names were located there.

Where are domain names located? Traditionally, courts find that intangible property is located where its owner is domiciled, or in some cases (such as that of stocks) where it is registered. With respect to intangible property, such as stock, insurance policies, and rights to payment, courts have repeatedly held that such property has its location where the party controlling it may be found. And again, as noted above, none of the domain name owners appear to reside in Kentucky.

Personal jurisdiction over the registrars is a different issue; this, again, is in rem jurisdiction, asserted over the domain names. In many circumstances, states have acted to block Web sites from reaching their citizens, or have prohibited Internet companies from transacting in their states -- by fining them or otherwise sanctioning them -- but there, states asserted personal jurisdiction based on the companies' doing business in the state.

Why the Kentucky Ruling also Abridges Constitutional Rights

Both the domain name owners and civil rights groups have raised other important constitutional arguments in the Kentucky case. These organizations, including the Electronic Frontier Foundation and the American Civil Liberties union, have highlighted the danger that could result if a state court can order the seizure of domains regardless of where they are registered.

The constitutional issues here include whether due process is violated if the domain name registrars are hauled into court in Kentucky, when they may not have adequate contacts there to form a basis for the assertion of jurisdiction.

The First Amendment issues here, too, are strong: A state's power to seize a domain name might have a chilling effect on speech, causing people to self-censor. Moreover, if the domain names were seized, could others refer to them -- or would they also be punished?

Finally, the ability of Kentucky to seize the domain names -- and thus effectively deny citizens from other states access to sites -- impedes interstate commerce in the United States, and thus is a violation of the Commerce Clause.

If the Kentucky Court of Appeals sides with Judge Wingate, what will this mean for Web sites? The result would be both frightening and absurd. If any state or country had the power to order the seizure of sites' domain names (even those used and registered elsewhere) on the ground that the sites violated local laws, this would give huge power to any government -- including repressive regimes. As the Electronic Frontier Foundation has noted: "If the mere ability to access a Web site gives every court on the planet the authority to seize a domain name if a site's content is in some way inconsistent with local law, the laws of the world's most repressive regimes will effectively control cyberspace."

A country that dislikes certain types of speech, for example, could order the transfer of the relevant domain names and thus effectively hijack a vital part of the Internet. Of course there is an issue of whether registrars would comply with such orders -- but we should be able to depend on law, not just the registrars, to protect our rights.

This article originally appeared in FindLaw.com's online publication, Writ, and was reprinted with permission of the author.

Ms. Ramasastry is the D. Wayne and Anne Gittinger Professor of Law at the University of Washington School of Law in Seattle and a director of the Shidler Center for Law, Commerce & Technology.