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