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District Judge LIAM O’GRADY Rules Domain Names Are Not Property under Virgina Law

A Virgina federal judge has ruled that domain names are not property under Virgina Law.

The case is ALEXANDRIA SURVEYS, LLC, , v. ALEXANDRIA CONSULTING GROUP, LLC, (ACG)  Civil Action No. 1:13-CV-00891, United States District Court, E.D. Virginia, Alexandria Division and was handed down by District Judge LIAM O’GRADY

The case was an appeal from a Bankruptcy court decision, which involved a lot of issues, but we are going to limit our review of the case only as it applied to disucssion related to the the domain name of Alexandria LLC, ALEXANDRIASURVEY.COM, which was ordered by the Bankruptcy Court to be sold to paythe creditors.

The Debtor argued  that the domain name  and phone numbers sold to ACG at auction were not the debtor’s property, and therefore could not be properly sold as part of the bankruptcy estate.

“Appellant further argues that even if the sale of Alexandria International’s assets to ACG was valid, the sale of the 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).

“The property of the bankruptcy estate is defined in 11 U.S.C. § 541(a)(1) as “all legal and equitable interests of the debtor in property as of the commencement of the estate.”

With respect to the status of telephone numbers, there is a split of authority among the circuits. The Ninth Circuit and the Second Circuit have specifically held that a trustee lacks the right to distribute a telephone number as property of the estate, see Rothman v. Pacific Tel. & Telegraph Co., 453 F.2d 848, 849-50 (9th Cir. 1971); Slenderalla Sys. of Berkeley, Inc. v. Pacific Tel. & Telegraph Co., 286 F.2d 488, 490 (2d Cir. 1961), while the First and Fifth Circuits have taken the opposite position, see Darman v. Metropolitan Alarm Corp., 528 F.2d 908, 910 n.1 (1st Cir. 1976); In re Fontainebleau Hotel Corp., 508 F.2d 1056, 1059 (5th Cir. 1975).[2]

Although the Fourth Circuit has not specifically addressed this issue, it is well-settled that the contours of the property interests assumed by the trustee are determined by state law. Butner v. United States, 440 U.S. 48, 48-49 (1979).

Accordingly, Appellant cites the Virginia Supreme Court’s relatively recent decision in Network Solutions, Inc. v. Umbro International, Inc. for the proposition that a judgment debtor has no property right in its telephone numbers and web address.

In Network Solutions, the Virginia Supreme Court held 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. 80, 86-87 (Va. 2000) (stating that “a domain name registrant acquires the contractual right to use a unique domain name for a specified period of time” and that a domain name is not personal property, but rather “the product of a contract for services”).

In the absence of controlling Fourth Circuit precedent, this Court refers to Network Solutions to define a debtor’s property interest in its web address and telephone numbers in Virginia.

Although ACG argues that Network Solutions is distinguishable because it relates to a garnishment proceeding rather than a bankruptcy, the garnishment context does not change the Network Solutions court’s holding that the use of a domain name is a “contractual right” that does “not exist separate and apart from [the provider]‘s services that make the domain names operational Internet addresses.”

While telephone numbers and web addresses are important branding tools and certainly have value to those who use them, that subjective value does not equate to ownership under Virginia law.

The Virginia Supreme Court confirmed in Network Solutions that neither telephone numbers nor domain names were garnishable personal property because “neither one exists separate from its respective service that created it.”

Therefore, because Virginia does not recognize an ownership interest in telephone numbers and web addresses, neither were property of Alexandria International’s estate and neither were subject to sale by the trustee (nor would they be subject to sale in any future proceeding).

Furthermore, even if Alexandria International did have possessory interests in the use of the telephone numbers and web addresses, those interests were the product of executory contracts with Cox Communications that were irrevocably rejected by the trustee before the estate was reopened.

The telephone and web hosting contracts were scheduled on Schedule 0, titled “Executory Contracts.”

It is undisputed that the trustee did not assume the contracts with Cox within the time required by the statute.

Thus, even if Alexandria International had an intangible property interest in the web address and telephone numbers, that interest was abandoned when the trustee failed to assume the service contracts.

Because Alexandria International’s estate had no property interest in the phone numbers and web address (or, at most, had a contractual interest in them that the trustee failed to assume), neither could be sold as part of Alexandria International’s bankruptcy estate.”

Source thedomains.com

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November 27th, 2013



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