Wednesday, March 19, 2008

Is "Intangible" a Property Category?

I think not. I was happy to get a comment on my last post, and the commenter suggested that the category "intangible" will disappear with respect to "virtual" money. I had two thoughts when I read the comment: first, "hmm, isn't all money virtual?" and second, "oh gosh, I need to write another post!"

The question I posed in that last post was "what can virtual property do for property?" and I hope to suggest some answers to that question in this and future posts. One thing that virtual property might do for property is to lure people away from thinking of "intangibles" as a property category. There are many different types of intangible assets, and lumping them together into a single category can impede the development of the law. I explain this point in more detail in my article, "False Categories in Commercial Law: The (Ir)Relevance of (In)Tangibility." Joshua Fairfield took a big step in the right direction when he defined "virtual property" as an asset class in his article, "Virtual Property." In that article, he describes "virtual property" as property that is "persistent, rivalrous and interconnected."

A well-known conversion decision illustrates the problem of viewing tangibility as the defining characteristic of an asset. That decision is the Ninth Circuit's decision in Kremen v. Cohen, 337 F.3d 1024 (2003), the " case."  In that case, the domain name registrar, Network Solutions, had followed bogus instructions to transfer (then the most valuable name on the Internet) from its original registrant, Kremen, to Cohen, who had no rights in the name.  Under the applicable California law, an intangible asset can only be converted if it is merged in a document. Therefore, a share of stock evidenced by a paper certificate can be converted, as can a negotiable instrument such as a promissory note. 

Network Solutions had behaved outrageously, and the Ninth Circuit did the right thing in saying that it had converted the domain name. The process by which Judge Kozinski reached that conclusion, however, doesn't do much for the development of property law. To find Network Solutions liable, the court had to find that the name WAS merged in a document. The problem with that approach is that there's no tangible document involved in domain name registration. Registration is completely electronic, and once the name is registered, it goes into the Domain Name System, which is also not only completely electronic, but is also distributed among a number of places. Nevertheless, the court found that was merged in a document, the domain name system!

Why is the decision in Kremen a problem? Because it focuses on the wrong characteristic of a domain name, its intangibility. By doing so, the court engaged in strange mental gymnastics to find that an electronic, distributed system is a "document" for the purpose of a conversion action. But why is a document so important to conversion anyway? Take a promissory note as an example. A promissory note is a reified right to payment, and that right is commonly transferred by negotiation, which involves physical delivery. If a person takes a note from its rightful owner, that person can exercise control over the payment right, to the exclusion of the rightful owner. In other words, a promissory note is rivalrous.

Likewise, a domain name is rivalrous. When Network Solutions tranferred to Steven Cohen, Gary Kremen, the rightful owner, could not use it. There can only be one domain name. The court in Kremen v. Cohen declined to extend the tort of conversion to all intangible assets, which was the right conclusion. But extending it to domain names only because they are "merged in a document" is also wrong. By focusing on intangibility rather then on rivalrousness, the Ninth Circuit missed a great chance to modernize the law to account for emerging electronic rights.

But what do virtual worlds have to do with this? Everything in a virtual world is intangible, but the rights embodied in these intangible assets are as different as the rights embodied in assets in the real, or tangible, world. The two disputes I discussed in my initial post, Bragg and Eros, illustrate this point in a way that a domain name dispute cannot. Bragg, a dispute involving intangible assets, is a conversion case. Linden interfered with Marc Bragg's use and enjoyment of his virtual world assets in the same way that a bicycle thief might interfere with my use and enjoyment of my bicycle. Eros, another dispute involving intangible assets, is an intellectual property case. In that case, Thomas Simon didn't interfere with anyone's use of a sex bed (and no, I will not post about how a sex bed works. Google it); he instead interfered with the right of Eros to make copies of and distribute the sex bed. So virtual worlds, by giving us the opportunity to resolve myraid property disputes, ALL of which involve intangible assets, might help us to clarify our thinking about intangible assets.

Juliet Moringiello

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I don't know what's more fascinating: the philosophic and legal theses involving "real" versus "virtual" assets...or the fact that once again the pornography industry is at the vanguard of extremely important, controversial and fundamental legal issues, i.e. 1st Amendment (free speech), property rights (Kelo and domains), etc...OR...perhaps the fact that "MetaVerse", as coined by Neal Stephenson in his novel "Snow Crash", has forced people to actually engage in a conversation that might go something like "...hey, what are you doing?" "Oh, nothing, just Googling a sex bed..."!!!!

Ten years ago that phrase would have been utter gibberish. And so, I suppose we should be thankful for the pornography industry (gasp) in ways most others who are usually thankful for the pornography industry, are not.

Anyway, back to the discussion at hand...for me, the distinction between anything real and virtual ceases, once proof of a tendril or link to the actual world exists. Clearly, domain names exist for real purposes, and ultimately generate substantial real incomes and so on.

Perhaps the debate is equivalent to that of the appearance of the mechanically printed bible of Gutenberg. The incunabula recited the same word of God as the pages printed by Gutenberg. Were the words any less real to their readers because they were not printed by hand anymore?

Better yet, the argument that a domain name is virtual is WRONG in the sense that it does exist as binary coded 1s and 0s, via transistors (physically real objects) and other solid-state magnetic devices (also real objects). But that is getting dangerously close to a purely existential argument...and therefore too disentangled from the core interests of this blog.

At any rate, fascinating stuff.

Posted by: Sam Gompers | Mar 20, 2008 8:44:56 AM

Interesting post!currently writing my thesis on whether property rights exist in domain names and then as if distinguishing it from trademarks isnt hard enough, one has to differenctiate btwn real and virtual property. read soo many interpretations of kremen v cohen (the second case), hard to take a stance since the case hasnt been cited as precedent for a later decision on the very issue!!
thanks for this

Posted by: Damis | Apr 16, 2008 4:15:58 AM

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