Eminent domain name
By Jon
Swartz
Forbes.com
02-7-2000
When Netrepreneur Gary Kremen jumped the
digital gold rush and wangled rights to the domain name "sex.com"
in May 1994, he envisioned online riches. The Stanford
Business School grad started to sketch a business plan for an
adult-oriented Web business, and the millions of hits (and
dollars) that would come with it.
Instead, porn impresario Stephen Michael
Cohen presides over a cyber fortune at sex.com, which boasts
more than 10 million paid subscribers, at $25 each, and is
ground zero to a swarm of $1 million banner ads from X-rated
merchants.
In a federal court in San Diego on Feb. 3,
attorneys for Kremen and Cohen faced off again in one of the
Internet's longest and most lurid lawsuits. (A
"protective order" issued during that session bars
participants from speaking on the case.) Kremen claims in a
1998 complaint that Cohen stole the rights to sex.com in late
1995 with a forged letter and that domain-name registrar
Network Solutions (nasdaq: NSOL)
unwittingly let it happen. In the process, Kremen says he was
cheated out of millions in e-commerce sales, setting into
motion a series of suits and countersuits that read like a
trashy Jackie Collins potboiler. Kremen is seeking millions in
unspecified damages from Cohen and NSI. A jury trial is
scheduled June 11 in U.S. District Court in San Jose.
| Internet experts
estimate 86% of sex-related business on the Web passes
through sex.com, making it a more valuable commodity
than Business.com, which recently sold for $7.5
million. |
"In the category of sex, lies and
videotape, this case has it all--bankruptcy, fraud,
pornography, forgery, offshore holdings, deep pockets, dirty
tricks, depositions in six foreign cities and a bitter dispute
over rights to a multimillion-dollar domain name," says
Ellen Rony, coauthor of The Domain Name Handbook.
Internet experts estimate 86% of sex-related
business on the Web passes through sex.com, making it a more
valuable commodity than Business.com, which recently sold for
$7.5 million to eCompanies. "Sex.com is the most coveted
domain name," says John Zehr, a former cybersquatter who
sells generic Web addresses in Jackson, Miss. "Every day,
millions of teenage boys punch in 'sex' as soon as they go
online."
And millions eagerly pay for the right to
leer at unsavory content. Kremen has likened Cohen to a land
baron who inveigled his way into prime real estate with a fake
deed--such are the vagaries of cybersquatting in the
information age. "This is insane," Kremen, 36, of
San Francisco, said in an earlier interview. "It is so
sad I have to fight this. Cohen and NSI are trying to ruin my
life. Grrr, this makes me angry."
Cohen scoffs at the accusation,
characterizing Kremen as a lawsuit-happy "nut" who
missed out on the sex.com boom. "The only thing I can
tell you is there will be plenty of litigation against Kremen
and others for defamation," Cohen snarled in a lengthy
telephone interview from his office in Tijuana, Mexico, on
Feb. 2. "I've never met [Kremen] or his attorney. But
they sure came up with one a hell of a story."
Indeed, Charles Carreon, who is Kremen's
third attorney on the case, details a Byzantine web of deceit,
corporate indifference and greed.
Carreon claims Cohen--who served 18 months
in Lompoc (Calif.) Federal Correctional Institution in 1993-95
for bankruptcy fraud, obstruction of justice and related
charges, according to court records--finagled NSI into
surrendering "sex.com" through the use of a forged
letter from Kremen's company, Online Classifieds. Kremen says
he didn't know of the Oct. 15, 1995, letter, and Cohen soon
transferred the coveted Web address to Sporting Houses
Management, a now-defunct Nevada company that eventually
morphed into Ocean Fund International in British Virgin
Islands, according to Carreon. Cohen, who is in his early 50s,
purportedly splits time between the British Virgin Islands,
Mexico and Nevada.
The far-flung enterprise repeatedly changed
physical addresses, but its web address, Sex.com, and its
content--a den of sordid, sexually explicit Web
sites--remained the same. And from all accounts, it is the
cornerstone of a smut empire that rakes in up to $400 million
a year.
Muddying matters is the role of NSI, the
world's largest domain-name registrar with a market cap of
$9.3 billion. Carreon says the Herndon, Va., company, which
has been roundly criticized in Internet circles for its
reluctance to cede its monopolistic powers, unintentionally
abetted Cohen with its refusal to protect domain names from
"theft" and "mistaken transfers." NSI
policy imposed in July 1995 requires that disputing parties
settle their differences.
"Why can't Network Solutions admit it
made a mistake?" Kremen asks. "I've spent $500,000
of my own money trying to correct their mistake."
"Cohen has devised a brilliant
strategy. He stole sex.com and now is ripping off other porn
businesses with trademark-infringement suits and stealing from
customers by not delivering content," says Carreon, who
was in San Diego to tape a video deposition of Cohen on Feb.
3. "He's a piece of work."
| Attorney Charles
Carreon says NSI abetted Stephen Michael Cohen with
its refusal to protect domain names from
"theft" and "mistaken transfers." |
Cohen huffily dismisses Carreon's story as
"scandalous series of inaccuracies." He calls Kremen
a Johnny-come-lately opportunist, who staked his claim to
"sex.com" more than a decade after Cohen had secured
the trademark rights in 1979 as part of The French Connection
electronic bulletin-board for "swingers" and
"nudist camps." Further, he accuses Kremen, whom he
has never met, of falsifying paperwork to incorporate Online
Classifieds in a desperate effort to land the "sex.com"
moniker. "The only one guilty of forgery is Gary Kremen,
whoever he is," Cohen says.
Kremen denies the charge: "[Cohen] is a
scoundrel attempting to obfuscate the issue," he says,
pointing out that there was no dot-com in 1979, thereby
deflating Cohen's claims to trademark rights to sex.com.
(Cohen's attorney, Leonard DuBoff, did not return phone
calls.)
NSI attorney Philip Sbarbaro and company
spokeswoman Cheryl Regan declined to comment. But NSI
officials assert in court testimony that domain names are not
personal property and that Kremen waited four years to sue
after applying for sex.com. In a motion filed last month, the
domain-name registrar sought a summary judgment. U.S. District
Court Judge James A. Ware is expected to issue a ruling in
late February.
Mark the date as just the next stop in a
wending legal battle that could extend into next year. Both
camps are willing to fight over sex.com for a long time.
"Cohen has deep pockets (an estimated
$17 million in annual salary plus millions of dollars worth of
stock options) and is willing to protect his property in
court," Rony says. "But Gary has persistence and
moral outrage." (Kremen said he planned to present
sex.com as a "Joceyln Elders/Dr. Ruth-like" site for
advice.)
Like Cohen, Kremen also has ample financial
resources: He sold Match.com, the online dating service he
founded in 1995, for $6 million to Cendant (nasdaq: CD).
Cendant, in turn, hawked Match.com to Ticketmaster (nasdaq: TMCS)
for $50 million.
"This ugly mess could go on for
years," muses Carreon.
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