There was an interesting development in the Eastern District of Virginia. There was a dispute between two surveying companies over the the assets of Alexandria Surveys International (ASI). These companies, both located in Alexandria, Virginia, wanted the rights to ASI’s telephone number, web address, and domain. One of these companies, Alexandria Surverys (Surveys) claimed to receive these items from Cox Communications (an Internet Service Provider in the area) through a special contract. Another company, Alexandria Consulting Group (ACG), purchased the right to the domain at an estate sale. When another court ordered ASL to turn over the domain to ACG, Surveys sued claiming that the domain was not a piece of property subject to being part of the bankruptcy estate.
The court made an interesting conclusion. They held that a company’s interest in its domain is a contractual right, rather than a property right (and not subject to a bankruptcy sale). The court’s logic for this is fairly straightforward. The judge cited a Virginia Supreme Court case, Network Solutions v. Umbro, that held that creditors could not garnish debtor’s phone numbers and domain names because “neither one exists separate from its respective service that created it.” (Network Solutions, at 87). Since that logic applies to domain names when dealing with bankruptcy (domain names do not suddenly become divisible from their provider because of bankruptcy), the court decided that ACG’s acquisition of the domain name through the bankruptcy sale was not valid.
What does this mean? Well, the major result is that creditors cannot go after domain names as easily as they could before this ruling. The other potentially interesting result is a potential conflict with California and the Ninth Circuit, which both found domain holders to possess a property right in their domain names (as mentioned in Eric Goldman’s blog). The ruling also complicates some property based legal actions, like conversion (committing an act inconsistent with the property rights of another). Placing domain names under contract law, as opposed to property law, also makes service agreements between the entities providing the domain name and the website owner much more important. Terms involving what happens when breach occurs or bankruptcy become much more important.
Now there’s an important caveat to all of this: this ruling only applies to Virginia. While the ruling was made in a federal court, the court applied Virginia law and precedent to reach their conclusion. As a result, the idea that domain names are not property only applies to Virginia entities. Whether this leads to a circuit conflict later, remains an open question. That this ruling applies only in Virginia may have some additional unintended consequences, such as businesses choosing to register (or not register) their website in Virginia based on their legal preference.