O'Say it's not So: Virginia Judge O'Grady Rules Domain Names are not Property Saleable By a Chapter 7 Trustee
Courts do not agree on the issue of domain names as property. Some courts treat domain names as a contract right
between the domain name holder and the registrar. Other courts recognize domain names as a separate form of intangible property
. But, until now, courts have all agreed that domain names are, in fact, property, and encompass a property right that can be transferred by a bankruptcy trustee.
In the Alexandra Surveys International, LLC
case, Federal District Court Judge O'Grady held that a domain name was not a property right that could be sold by a chapter 7 trustee, particularly when the domain name registration agreement would have been automatically rejected under 11 USC 365(d)(1). The case had an unusual set of facts. The debtor filed a chapter 11 petition on March 3, 2010. At that time, it owned the domain name "ALEXANDRIASURVEY.COM" but did not disclose the domain name in its bankruptcy schedules. The case converted to chapter 7 on January 27, 2012, and eventually closed. After the bankruptcy case closed a new company started by the debtor's principals, Alexandria Surveys, LLC, acquired the domain name
. The decision doesn't state whether the original domain name registration had lapsed, and the name re-registered, or whether the debtor had managed to assign the name to Alexandria Surveys, LLC in some manner. A month later, a third party filed a motion to reopen the case and offered to buy from the chapter 7 trustee the previously undisclosed domain name and other assets of the estate. The bankruptcy court allowed the motion to reopen, and, over Alexandria Surveys, LLC's objection, allowed the sale of the domain name and other assets. Because the domain name and other assets had not been disclosed by the debtor to the chapter 7 trustee, they remained property of the bankruptcy estate notwithstanding the case's closure.
On appeal, the District Court held that the domain name was not property of the bankruptcy estate saleable by the chapter 7 trustee. Bound to follow the Virginia Supreme Court's earlier decision in Network Solutions v. Umbro International
, the court concluded that "because Virginia does not recognize an ownership interest in ... web addresses, neither were property of Alexandria International's estate and neither were subject to sale by the trustee." The court stated further that even if the estate had an interest in the domain name, that interest was limited to the rights under the domain name registration agreement. The debtor's schedule G had listed web hosting contracts with Cox Communications, and the chapter 7 trustee had not assumed those contracts within the 60 day period dictated by 11 USC 365(d)(1). Thus, the interest was automatically abandoned by the trustee and could not be sold.
The decision, unfortunately, is riddled with errors. First, it miss-characterizes the holding in Network Solutions v. Umbro International, which defines a domain name as a contractual property right. The decision cannot be properly read to hold that a domain name is not property at all. Second, it assumes that the domain name contract is executory in nature, which while possibly the case can't be determined without reviewing the actual contract. Third, a review of Verisign''s list of authorized domain name registrars
indicates that Cox Communications is not a domain name registrar. So, even if the debtor had purchased website hosting services from Cox Communications, it's domain name registration agreement was not with that company. Its domain name registration agreement must have been with some other, unknown, company. Thus, the executory contract was not properly disclosed. Fourth, even though the undisclosed registration agreement might have been automatically rejected under section 365(d)(1), that does not necessarily act as a termination or abandonment of the agreement. Chapter 7 trustees can, with the cooperation of the non-debtor party, assume and assign previously rejected agreements. Finally, the decision completely ignores the possibility that the debtor's principals had, post-petition, transferred the contract rights to their new company instead of allowing the domain name registration to lapse and then re-registering it. In that case, the Trustee would have a right to recover the property interest both under sections 542 and 549.
The most troubling aspect of the decision is the language stating bluntly that a domain name registration is not estate property. Fortunately, the conclusion does not find support in other cases and also runs contrary to the proper interpretation of Network Solutions v Umbro International. Domain names are property
, and can be administered in a bankruptcy case.
Labels: alexandria surveys, domain names, kremen v cohen, umbro
Good Stuff Cheap
In the bankruptcy world, matching sellers of distressed assets with potential buyers has always caused difficulties - usually resulting in reduced sale prices and relative bargains. For large capital assets - like the Polaroid patent portfolio
, or Chrysler
, investment bankers satisfy the market gap. Selling smaller assets, like automobiles, time shares or necklaces, presents a more recalcitrant problem. The sellers are fragmented, a broad spectrum of individual chapter 7 trustees, receivers, and other liquidating agents, each with only a small number of items to sell. Further, court rules and procedures governing insolvency processes limited sellers' ability to use many traditional sale mechanisms.
Years ago, the National Association of Bankruptcy Trustees
developed the bankruptcysales.com website, as a service to chapter 7 bankruptcy trustees to help them locate buyers for various assets. The website contained listings for available assets providing information for buyers to locate items of interest. But, the website was poorly structured and provided limited benefits.
The NABT has now updated the website, renaming it MarketAssetsForSale.com
, and expanding its scope, allowing receivers, assignees, banks and others who need to sell distressed assets to list their assets for sale. The website is not an auction mechanism or marketplace, like Bid4Assets
, but a resource to help buyers locate assets for sale through insolvency processes. The assets themselves are sold through the traditional sale processes. Chapter 7 trustees and some others can post assets for free, others will have to pay a fee. Sellers and potential buyers do need to set up an account to access the website - buyers have to pay an annual fee of $120.00.
The new site has a much better interface than the old website, with nifty pictures of assets, a cleaner interface, and better tools for searching for assets. Hopefully, with the improved interface more bankruptcy trustees will post assets to the website, and with a broader scope of available assets more buyers will find the website a useful tool for locating the Good Stuff they want Cheap.
Is Air Free?
You would think that air should be free, but of course air, or at least the right to send signals through it, has not been free for some time. The FCC controls the right to use air to transmit information, divvying the air up into all sorts of frequencies and selling them off to the highest bidder. From a bankruptcy perspective, the right to use the air is well understood as an asset
, and can be transferred or even sold under the right conditions. Now, Google has found a way to perhaps muddy the waters (or, perhaps I should way cloud the skies).
This morning, Google announced
its new spectrum database to help companies to, well, use unused air. The basic concept is simple. Although the FCC has divided up the electromagnetic spectrum, large portions of the spectrum aren't actually being used. But, identifying what spectrum is available in a particular location presents a challenge - in some cases the spectrum has been allocated to someone so it is subject to use, and might actually be used from time to time and from place to place. Other spectrum exists in the gaps between already allocated spectrum. Google's new product is a database that tracks spectrum intended to carry television signals to identify exactly when and where the spectrum remains unused. This so-called "TV white space" can, once tracked, be re-purposed for other uses. Primarily, network providers can use it to create large public or private Wi-Fi networks. The database essentially provides a source of control over this TV white space to ensure that multiple systems or device networks don't try to operate using the same TV white space. Google provides an API that commercial entities can use to link their systems in with the database to maintain operations. What gives Google the authority to provide this service? Well, they built it and a few months ago the FCC certified them
to manage the database - essentially controlling access to TV White Space in the United States.
In short, the FCC has given Google the right to control the little bits and pieces of unused spectrum. This is an interesting kind of asset - the right to control what economists refer to as a common good
. Common goods are goods that can't be consumed by more than one person, but you also can't control who comes and consumes them. The classic example is wild fish - there are only so many fish in the sea but anyone can get in a boat and try to catch them. Absent some kind of legal or technical limitation on access, chaos ensues or the good is rapidly depleted. Usually, when controls are placed on common goods, we see the control function vested at the government level, as in the case of commercial fisheries or FCC spectrum licenses. But, with the TV white space, Google will control who has access. In the technology arena, we have already seen a similar structure applied to domain names and IP addresses, mostly controlled by NGOs. We've even seen a sale of a large block of IP addresses
in the Nortel bankruptcy case. But, we haven't yet seen an attempt by the American Registry for Internet Numbers or a
Regional Internet Registry to sell its rights to control large IP address blocks. I don't expect Google is likely to file a bankruptcy petition anytime soon, but I am curious about how the bankruptcy process might treat a privately held right to control a common good.
Labels: FCC, Google, IP addresses, TV white space
A Trade Secret is Not a Copyright
Bankruptcy courts (and lawyers) continue to mystify by their inability to tell the difference between types of intellectual property, confusing patents, copyrights and trademarks as if they are all just variations on the same theme. In the Virgin Offshore USA, Inc. case
, the US District Court for the Eastern District of Louisiana had to deal with lawyers who had trouble telling the difference between copyrights and trade-secrets (or at least argued as if they did).
The case involved a debtor that had paid a one-time fee to access and use geological data resulting from seismic surveys for a limited time period. The licensor, TGS-NOPEC Geophysical Company, L.P., objected to the debtor's attempt to assume the license agreement under 11 U.S.C. sec 365. After the bankruptcy court overruled the objection, the licensor appealed the matter to the District Court. The idea that copyright licenses are personal to the licensor and can only be assigned in bankruptcy with the licensor's consent is well known as a result of decisions like Everex Systems, Inc. v. Cadtrak Corporation
, so the licensor argued that the data was protected by copyright - notwithstanding the fact that the agreement was labeled a trade secret agreement, the licensor never attempted to copyright the information, and decisions from numerous courts existed holding that seismic data is not protected by copyright. It lost.
The District Court went on, in dicta, to talk about whether an inability to "assume" the license under 11 U.S.C. sec 365 would prevent "assumption" of the license by the reorganizing debtor. The Court recognized that the Fifth Circuit has not yet explicitly adopted the "actual test," which would allow assumption, over the "hypothetical test," which would not
. Discussing the prior decisional history in the Fifth Circuit, the Court stated that the actual test is the correct test, based on the Court of Appeals' holdings in In re Mirant
and In re O'Connor.
Labels: assignment, assumption, capapult, coypright, everex, trade secret, virgin offshore
Turning a Paige on Domain Name Ownership
An unreported decision from the United States Bankruptcy Court for the District of Utah, Paige v. Search Market Direct, Inc.
, 2009 WL 2591335 (Bankr. D. Utah 2009), provides a fresh look at how to determine ownership of a domain name.
In a case with an unbelievably complex fact pattern (you read it - I just don't have that kind of time), the salient issue was whether the debtor, Mr. Paige, or a company he owned, was the true owner of the domain name "freecreditscore.com" when Mr. Paige filed his bankruptcy case in 2005. At the time of the filing, the name was registered to neither Mr. Paige nor his company - it was registered to a Mr. Conklin (Mr. Conklin did not claim ownership to the name).
Judge Thurman held that because Mr. Paige exercised dominion and/or control over the domain name both prior to and after the bankruptcy filing, that he was the correct owner of the domain name and, thus, the name was property of the bankruptcy estate.
Judge Thurman then addressed whether the domain name could be converted under Utah law. The bankruptcy trustee had argued that a domain name is a form of intangible personal property, subject to a claim for conversion under the 9th Circuit decision in Kremen v. Cohen
(applying California law). The defendants argued that the domain name rights were limited to the contract with the registrar. Judge Thurman rejected both arguments. He noted that Utah courts had previously rejected the concept that intangible personal property could be converted. But, following a thread of reasoning so subtle that even I have difficulty understanding it, Judge Thurman held that a domain name is in fact a form of TANGIBLE personal property, and could, thus, be converted.
I will just repeat these two quotes: "...like web pages and software, domain names can be perceived by the senses..." and "unlike a mere idea that can only be stored in a person's mind, domain names can and do have a physical presence on a computer drive."
On the other hand, it is an unreported decision. And I do have to hand it to Judge Thurman for his understanding that general common law principles should be applied to the concept of domain name ownership, rather than a strict examination of domain name registry records.
Labels: domain names, kremen v cohen
According to the Associated Press
, the company that previously purchased the domain name "sex.com" for an estimated $14 million in 2006, has been placed into an involuntary bankruptcy on the eve of a scheduled foreclosure sale of the domain name. Domain name owner Escom, LLC financed the purchase through a secured loan from Domain Capital, LLC. When Escom failed to make its payments, Domain Capital, LLC called the loan and scheduled a foreclosure auction of the domain name. On March 17, three creditors filed a Chapter 11 involuntary in the Central District of California, case no. 10-13001, to stop the auction sale. Counsel for the petitioning creditors is listed as a Mark Chassman.
Labels: domain names, sex.com
The first thing we do, let's hire all the lawyers
Anyone who has worked on patent prosecutions knows how the work generally gets done and billed. First, you hire a trusted U.S. firm to handle the overall prosecution effort. Then, that firm lines up the various other firms it works with to handle international work. The local firm coordinates and supervises the international work and also monitors the costs. Fees and costs incurred by the foreign firms are charged back to the primary prosecution firm, which passes the charges along to the client. Generally, these charges are fairly limited - perhaps a few hundred dollars or maybe just a couple of thousand dollars.
This structure serves a number of purposes. First, it makes sure the lead patent prosecution firm is comfortable with how the international work is being handled. Second, it eliminates the need for the client to deal with multiple firms - most of which are performing minor technical tasks that the client does not understand. Third, it allows the lead firm to work with the client to coordinate strategy and translate the foreign activity into terms the client can understand. Overall, the system works pretty well.
Not so fast, according to Judge Tchaikovsky of the U.S. Bankruptcy Court for the Northern District of California. In In re Lipid Sciences, Inc., 2010 WL 234840 (Bankr. N.D. Cal.), Judge Tchaikovsky denied a fee application filed by patent counsel to a Chapter 7 trustee. Pointing out that the fee application included as costs the fees of foreign patent counsel, the Judge stated "this portion of the costs is entirely inappropriate. Fees may be paid only to court appointed professionals." In her view, each of the foreign counsel would have to be separately retained by the Chapter 7 trustee and file their own fee applications.
This may be correct as a matter of law, but all I can say is good luck getting a firm in London or maybe China to jump through those hoops for what might only be a couple of hundred bucks.
Labels: leslie tchaikovsky, patent counsel
Judge Bufford likes Websites
In In re S & B Surgery Center, Inc
., 421 B.R. 546 (Bankr. C.D. Cal. 2009), Judge Samuel L. Bufford addressed the question of whether a creditors' committee MUST maintain an information website in order to comply with bankruptcy code section 1102(b)(3).
The BAPCPA added, at section 1102(b)(3), an affirmative obligation for creditors committees to provide access to case information to their constituencies. In the Refco
decision the Bankruptcy Court for the Southern District of New York laid out how a creditor's committee should use a website to satisfy the section 1102(b)(3) requirement, and identified twelve features the website should contain.
In S & B Surgery Center, the creditors committee sought to provide a telephone number that creditors could call for information. They argued that maintaining a Refco compliant website would be too expensive and the number of creditors in the case did not warrant the expense. Judge Bufford disagreed, and held that the committee should maintain a website to provide information to the creditors.
Judge Bufford did not require that the website meet all twelve of the Refco factors, so long as the needs of the creditors were met. This leaves open the possibility that a creditors committee in a smaller case could use much cheaper options (read free), such as a Google Groups site (or maybe even a Facebook page) to communicate basic information about the case.
Labels: creditors committee, facebook, google groups, judge bufford, refco
You've been served
BBC News reported
a couple of months ago about a British court allowing service of a court order using Twitter. Twitter is, for those who do not yet know, an on-line network allowing users to post short messages that are then broadcast to a list of subscribers. In the particular case, a political blogger named Donal Blarney sought an order enjoining another user of the Twitter service. Because the target of the court injunction had not yet actually been identified, the court allowed the injunction to be served via a posting on Twitter. The posting gave notice of the court order and, because twitter postings are very limited in length, contained a link to the order itself.
Would similar tactics work in the U.S. Bankruptcy Court? Perhaps in limited circumstances. Fed. R. Civ. P. 5(b)(2)(D) and Fed. R. Bankr. P. 7005 allow service by "electronic means" when the recipient has previously consented in writing. Service is effective on transmission. This rule was designed to allow service by e-mail through the ECF system, but there really is no reason why other means could not be used as well. The catch is, of course, getting that advance written consent.
Labels: service of process, subpoena, twitter
A little bit off-topic post about Kindles
I came across the following article yesterday: E-BOOK TRANSACTIONS:
AMAZON “KINDLES” THE COPY OWNERSHIP DEBATE, 12 YALE J.L. & TECH. 147
(2009). It struck a chord, mostly because it cites fairly extensively to an article I wrote back in 2005 on the law surrounding transactions in electronic information. (A Framework for Understanding Electronic Information Transactions, 15 Albany Law Journal of Science & Technology 277 (2005)) I had been under the distinct impression that no one had really read the article, so I was pleased to see that I was, once again, wrong.
This article, written by Yale law school student Michael Seringhaus, posits that Amazon's sale of e-books for use on the Kindle should be classified as a sale of a book rather than a license of information. It also suggests potential ways of applying technological solutions, rather than legal solutions, to enforce single-copy ownership of an e-book.
I, in the meanwhile, have e-mailed Mr. Seringhaus' article off to my Kindle, where I will be able to read it at my leisure along with other law review articles, Westlaw advance sheets, and other miscellaneous documents that I do not have time to read at my desk. As it turns out, the Kindle is well suited for this purpose because you can e-mail a pdf or Word document (as well as many other types of documents) to an e-mail address Amazon provides you, and the document is automatically transferred wirelessly to the Kindle device.
Labels: copyright, Kindle