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Tech Bankruptcy
October 14, 2007
  A Second Life Shutdown?
A few months ago, I blogged about Second Life - the online world with a real economy. One player in that economy is AxisVR, LLC, which operates a couple of on-line office buildings and two very large conference centers - one in the middle of a space station. Very cool stuff. I recently got a hold of the following e-mail that AxisVR sent out to members of its in-world "group:"
"Greetings All,

Unfortunately, the rent has fallen behind quite a bit, and I will be dissolving this group and reclaiming the land shortly. I'll wait a few hours to give everyone a chance to take any objects they do not want returned. (No copy object that are owned by the group do get permanently lost when items are returned so please take anything you do not want to lose).

Sort of like the standard message to employees - we are about to hand the keys over to the landlord so make sure you clear out your personal belongings. Is the business folding? Are they just taking down some of the virtual buildings? Is the real estate on the auction block? I don't know the answers, but I might post again if I find out.

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October 11, 2007
  Domain Names: contract right or something more
Judge Illston, U.S. District Court Judge for the Northern District of California, recently issued an interesting decision about the nature of a domain name as an asset and, of tangential interest, where that asset is located. In Office Depot, Inc. v. Zuccarini, 2007 WL 2688460 (N.D. Cal. 2007), Judge Illston appointed a receiver to take control over and liquidate domain names owned by the infamous cybersquatter, John Zuccarini. On the way, she held that a domain name is property and that property can be located where the domain name's registry and registrar are located.

DS Holdings (the holder of Office Depot's judgment against Zuccarini) sought appointment of a receiver to sell Zuccarini's domain names. Zuccarini objected, holding that the domain names were not located in California and, thus, under California law, the District Court for the Northern District of California was not the proper forum for the receivership request. The Court noted this raised a two part question. First, is a domain name property? Second, where is that property located?

A Virginia court, in 2000, held that a domain name is really nothing more than a contract between the domain name holder and the domain name registrar. However, Judge Illston followed the applicable 9th Circuit law holding that a domain name constitutes a form of intangible property right, as set forth in Kreman v. Cohen, 337 F.3d 1024 (9th Cir. 2003). (see Warren E. Agin, I'm a Domain Name. What Am I? Making Sense of Kremen v. Cohen, 14 J. BANKR. L. & PRAC. 3 (2005)).

But where is that asset located? Domain names are managed through central registries - and there is only one central registry for each top level domain (ie .com, .org, etc.) The registry for Zuccarini's domain names was Verisign, located in California. However, domain name owners don't deal directly with the registry. They deal with domain name registrars, who are delegated the job of contracting with the domain name owners. And, typically, one goes to the domain name registrar to enforce or effect a transfer of ownership. For Zuccarini's domain names, the registrars were in Virginia, Washington, Germany and Israel. So, what is the proper forum? Judge Illston considered a number of options, but in the end held that the domain name exists in the location of both the registrar and the registry. Motion to appoint a receiver granted.

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October 01, 2007
  New Mexico Court Adopts "Actual Test," Defines New "Footstar Test."
In In re Aerobox Composite Structures, LLC, 2007 WL 2178045 (Bankr. D. N.M. 2007), the bankruptcy court for the District of New Mexico has adopted the actual test. Tubus Bauer GmbH had licensed patents to Aerobox. When Aerobox filed its chapter 11 petition, Tubus Bauer filed a motion to compel Aerobox to reject the license, relying on the Catapult decision.

Judge McFeeley denied the motion, based on application of the actual test set forth in Institute Pasteur v. Cambridge Biotech Corp., 104 F.3d 489 (1st Cir. 1997). Along the way, he made a couple of interesting points.

First, he addressed the Debtor's argument that the patent license was not executory. In this particular case, the license was pre-paid. The Court found material performance remained on both sides as a result of standard anciliary provisions found in the license. The licensee had an obligation to refrain from selling certain technology separately and to maintain confidentiality. The licensor had an obligation to defend the patent. These provisions were enough to make the license executory.

Second, the Court defined a new "Footstar Test." In the Footstar decision, the Court reasoned that for purposes of section 365(c) the term "trustee" means only that, and does not encompass the term "debtor in possession." Thus, section 365(c) can only affect the right of a trustee to assume a contract, not a debtor in possession. The Aerobox decision referred to this as the "Footstar Rule" and applied it as an alternative basis for reaching its result.

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A blog discussing the impact of technology on bankruptcy law and practice.

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Location: Boston, Massachusetts, United States

Warren E. Agin is a partner in Swiggart & Agin, LLC, a boutique law firm in Boston, Massachusetts focusing on the needs of technology companies. Mr. Agin heads its bankruptcy department. The author of the book Bankruptcy and Secured Lending in Cyberspace (3rd Ed. West 2005), Mr. Agin also chaired the ABA's E-commerce and Insolvency Subcommittee from 1999 to 2005, co-chaired the Boston Bar Association's Internet and Computer Law Committee (2003-2005), and served on the American Bar Association's Standing Committee on Technology and Information Services (2008-2011). Mr. Agin currently co-chairs the Editorial Board of Business Law Today. A contributing editor to Norton Bankruptcy Law and Practice, 3d, and co-author of its chapter on intellectual property for the past fifteen years, he is author of numerous legal articles and addresses on topics of technology, internet and bankruptcy law.

A Second Life Shutdown?
Domain Names: contract right or something more
New Mexico Court Adopts "Actual Test," Defines New "Footstar Test."
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