Minn. Supreme Court Okays Domain Name Seizure for Debts

Keep up with the latest developments and legal issues in the telecommunications and emerging technology sectors, with exclusive access to a comprehensive collection of telecommunications law news,...

By Joseph Wright

March 24 — Domain names qualify as intangible personal property that can be seized by creditors, the Minnesota Supreme Court held March 23.

The ruling is the first state supreme court decision to hold that domain names are property subject to attachment to satisfy debts.

Domain names are similar to other items the court found to be intangible personal property such as corporate shares of voting stock, Justice Christopher Dietzen said.

Minn. Stat. § 571.73 permits garnishment of “all other nonexempt intangible or tangible personal property of the debtor in the possession or under the control of the garnishee at the time of service of the garnishment summons.”

The decision could have far-reaching implications for the domain name business, John McElwaine, a partner at Nelson Mullins Riley & Scarborough LLP in Charleston, S.C. and Washington with a domain name-focused trademark counseling practice, told Bloomberg BNA March 24.

“If you start to see a groundswell of seizing domain names to satisfy money judgments, you could see registrars moving outside the U.S. or more pressure to move ICANN outside the U.S.,” said McElwaine, who heads the International Trademark Association's Internet Committee.

McElwaine referred to the Internet Corporation for Assigned Names and Numbers, a California non-profit corporation that oversees the domain name system. Some countries have questioned whether it is appropriate for ICANN to remain subject to U.S. court jurisdiction.

A closely related issue, whether top-level Internet domains themselves, such as .com or .net, are property subject to attachment, was argued Jan. 21 before the U.S. Court of Appeals for the D.C. Circuit . That court has not ruled yet.

Sprinkler Firms Dispute Domain Seizure

Plaintiff Sprinkler Warehouse Inc. sought to enforce a copyright infringement judgment against defendant Systematic Rain Inc. by seizing its domain name, gplawn.com. Sprinkler served a garnishment summons on Systematic's Minnesota-based chief executive officer, James Palm, asking him to disclose any money or property he held on behalf of Systematic.

Palm denied holding any property belonging to Systematic, even though gplawn.com was registered in his name. Systematic and Palm argued that the domain name wasn't property, and Sprinkler objected to the response.

The district court agreed with Systematic that the domain name was a contract for services and not property, but the court of appeals reversed that decision, finding the domain name was property subject to garnishment . Systematic appealed.

‘Characteristics Traditionally Associated With Property'

The state supreme court found that domain names fall within the plain meaning of intangible personal property, which includes all movable or intangible things, other than real property, capable of possession or ownership.

A domain name has no physical presence, being essentially “the key that allows Internet users to access a website,” the court said. But registrants have the right to possess or control domain names, and that right is transferable. Domain names are also unique, meaning that registrants have the right to exclude others from using their name.

“In short,” the court said, “regardless of their roots in contractual rights, domain names share many of the characteristics traditionally associated with property.”

Other courts ruling on the issue have generally ruled the same way, the Minnesota high court found. The U.S. Court of Appeals for the Ninth Circuit in Kremen v. Cohen, 337 F.3d 1024 (9th Cir. 2002) found that domain names satisfy a three-part test for finding property rights under California law:

  • being capable of exclusive possession;
  • having a precise definition; and
  • having an established legitimate claim to exclusivity.

    Systematic relied on Network Solutions, Inc. v. Umbro Int’l, Inc., 529 S.E.2d 80 (Va. 2000) , in which the Virginia Supreme Court found that domain names were contracts for services and not garnishable. But the court said the domain name in Umbro fell within a state-specific carve-out for liabilities on persons other than the judgment debtor. The parties in Umbro even conceded that a domain name was intangible personal property, the Minnesota court said.

    The court also applied general statutory construction principles. Because the statute explicitly carves out six forms of intangible property that can't be garnished, all other intangible property is presumptively attachable, the court said.

    The Kuhn Law Firm represented Sprinkler. Trepanier MacGillis Battina PA represented Systematic.

    To contact the reporter on this story: Joseph Wright in Washington at jwright@bna.com

    To contact the editor responsible for this story: Alexis Kramer at akramer@bna.com

    Request Tech & Telecom on Bloomberg Law