ERIC GOLDMAN: I want to explore this issue of analogies more because this is one of the issues that underlies the Kremen versus Cohen case. And if you'll indulge me, I do want to give a little bit of background about that case. It's a fascinating saga of the domain name sex.com. And if you think about the most valuable domain names that exist, you've got the combination of a very short catchy phrase, sex, and the fact that pornography is one of the largest Internet businesses. So the sex.com domain name has a transcendental value compared to just about any other domain name. It is perhaps the most valuable bit of cyber property that has existed. And back in the old days, there was only one domain name registrar. Now, of course, there's hundreds or even thousands of people who you can procure domain names from. But at the time, there was only one; it was Network Solutions. And at the very earliest stages of web proliferation, Network Solutions didn't even charge. You simply wrote in and said, I'd like a domain name, and they'd say, Okay, here you go, and that was it. So an entrepreneur, Gary Kremen did that back in '94; said, I want the domain name sex.com, and Network Solutions says, Here you go. And then we have a classic cyberspace law story. We have a bad actor. We have someone who is in it to cheat. And we have this guy, Stephen Cohen, who forges a bunch of paperwork, submits it to Network Solutions and says, I would like you to transfer the ownership of that domain name from Gary Kremen to myself, which Network Solutions did. When Gary Kremen found out, he wrote Network Solutions and said you've made a horrible mistake. And they said, If you've got a problem with it, take it up with the courts, which Gary Kremen has been doing now for over a decade. And when he first went after Stephen Cohen he got a $65-million judgment against Stephen Cohen, but Stephen Cohen left the country. He went down to Mexico. He took a bunch of money that he had made in the interim by possession of the sex.com domain name, was able to move it to himself and was living like king in Tijuana. And so we talked a little bit about this in this course about how it doesn't matter if you've got the legal rights; it only matters -- JUDGE ALEX KOZINSKI: You know he's been caught since? ERIC GOLDMAN: Well, I was going to get to the denouement in a moment. JUDGE ALEX KOZINSKI: Sorry. ERIC GOLDMAN: But part of the denouement is he has been caught, but he still hasn't paid a dime. But in any case this goes to one of the things we discussed in our class. It doesn't matter if you can win in the court of law; if you can't enforce your judgment it wasn't all that valuable. So Kremen effectively struck out against Cohen. He did take his house, however, so he did get something out of it. He got this nice place in Rancho Santa Fe, which is an upscale community down in San Diego. JUDGE ALEX KOZINSKI: It was trashed; it was trashed, wasn't it? ERIC GOLDMAN: I don't know about that, but apparently, Kremen's the kind of guy who delights in being able to contact Cohen and I don't know how, and calling him and saying, By the way, I'm now enjoying your bathroom. So there's something more going on here, but he did get a house and it's all he got. He didn't get his 65 million bucks. So Kremen said, I've got to be able to find other deep pockets. And so he said, Well, wait a minute. You know, sure Cohen was the interloper, but Network Solutions sure gave him a hand. This is another thing we've discussed in cyber law. Not just is a bad actor liable -- Cohen is liable; we have a $65-million judgment pending against him, but who else is liable? So Kremen went after Network Solutions, saying, You should not have made that assignment of the domain name out of my name. And this ends up in your court and the argument that Kremen made is that Network Solutions converted the domain name. They also tried some contract theories. For reasons I won't bore you with, it turns out the contract theories were not strong in this particular case, although they would be strong in just about every other case. But in this case, the issue proposed to the Ninth Circuit is whether a domain name was capable of being converted and, therefore, derivatively, would Network Solutions potentially have converted this domain name by assigning it from Kremen to Cohen? And the answer that you gave is that intangible assets can, in fact, be converted. I think that's an oversimplification of the case, but that is the general gist of where you ended up. JUDGE ALEX KOZINSKI: I think it's not; it's about right. ERIC GOLDMAN: And so we run into this interesting issue. We have this notion of what conversion means. We talked about this when we talked about trespass. For example, we talked about how there's conversation where you take the physical thing, and then you have trespass where it's something less than a permanent deprivation of the property. And trying to apply that intangible realm is an interesting thing. Do the analogies extend? Is it something simple where you can simply say, We know what conversion means in physical space; therefore, we can extend it to cyberspace? JUDGE ALEX KOZINSKI: Well, but we don't have to make that leap directly because the California courts have been struggling with this question since 1880, for over 100 years because you had all those sort of intermediate things, like shares of stock. If you steal a share of stock, well, you just stole a piece of paper that has a bunch of ink on it. It's not even good for taking notes on, right? So the courts will say, Well, this is really not a conversion because your other thing isn't worth anything. But, of course, the stock certificate represents the value of the company. And the California courts didn't have that much trouble saying, Well, with regards to a physical thing there that can actually be taken, the fact that the value of the thing that it represents are also taken even though you can't pick up and steal the value of a company. So we've come a long ways from that. There was a case involving laundry lists or a customer list and so on. So we had some case law to bridge the gap. I mean the problem here is that there wasn't any sort of piece of paper that was taken. But there was a piece of paper or series of pieces of paper that were connected with the domain name because the domain has to be in some sort of register. And we read the California cases as being fairly permissive and progressive about these things in saying that you could have a conversion and so on as this intangible right that's connected with some sort of written list, some sort of writing. It's sort of a silly requirement if you stop to think about it, but there is no other -- You still have to plead things according to accepted causes of action and maybe the better way to have phrased it is for some sort of taking of intangible right. But I guess California law, state law -- that concept does not exist and we may be better off if it did exist. And eventually it may come into being as a result of these cases. But the way the law develops is you take the tools you have at your disposal; you say, Here is a new situation. You look at the closest analogies, the laundry list cases, the stock cases, and you say, Well, how far is this from that and is it close enough to be able to make the leap? In this case we thought, Well, we're the first ones to make the leap but it wasn't as big a leap as it seemed. All of the policies, all of the reasons why you would have conversions seemed to apply equally to this situation, and all the arguments against it weren't so bad. Yes, it seemed to me to cut equally against holding anybody liable for anything. ERIC GOLDMAN: One of the interesting things we deal with in cyber law is predicting the law in the face of legal uncertainty. And that, in fact, is what you were wrestling with. The Ninth Circuit certified a question to the California Supreme Court about the scope of conversion law under California law. And they declined to respond to your request. Was that frustrating? What did that do in terms of your thinking about the case and dealing with the fact that the law was uncertain and California wasn't wanting to give an answer? JUDGE ALEX KOZINSKI: Did we do -- did we certify? ERIC GOLDMAN: Uh-huh. JUDGE ALEX KOZINSKI: Our panel? ERIC GOLDMAN: Uh-huh. JUDGE ALEX KOZINSKI: Oh, I don't remember that we did. Well, I mean, I'm not all that keen on certification. But I figure -- it's not frustrating for me. It's not a question of, well, I sort of need their answer. I can make up my own answer. I just think that since it's state law we're doing, we have some obligation to reach a resolve that's consistent with what the state courts would reach because people should not get a different result depending on the forum. So I feel some obligation when the state law is in flux or you really truly do not know how it would come out to at least give the state's highest court a chance to grab the issue and say, Yes, we agree that the law is in flux and we think this is the kind of question that we should answer. And all I got out of it, I mean, I did not remember that we tried to certify in this case, but we've tried before, sometimes successfully, sometimes not. But I don't view that as a rebuke of any sort. I view is as a pass, like we maybe realize the case, but we're sort of like an intermediate court of appeal, vis a vis the California Supreme Court. And then they simply said, No, we'd rather have it percolate and get the views of lower courts as to what they think about it. We don't think there is a need in the state to have a definitive answer on this today. That's their job and we have done our duty by giving them the chance to grab it if they think it's worthy of grabbing. If they decide not to, then we understand what the argument is. And we'll do our best and then expect that at some future point they will consider it and take our view into account with the view of other intermediate federal things. ERIC GOLDMAN: When I read the opinion, it really struck me that there were some other situations where this argument that intangible assets can be converted could be applied. By the way, just to be clear, there are plenty of places where we have a law that specifically governs the, quote, conversion of intangible assets. For instance, we have copyright law that protects against the use of copyrighted works. Or we have trade secret misappropriation law, which protects against the misappropriation of trade secrets. But we're talking now about the law of conversion as a separate legal doctrine and its application to intangible assets. I thought about something like frequent flyer miles. Could those be converted? Are those different from a domain name? Or if the airline was to make a mistake in its record-keeping so that it bumped down the number of frequent flyers that a person had, would that be a conversion? I was having a tough time distinguishing that circumstance from the kind of circumstance that was presented in this case. JUDGE ALEX KOZINSKI: Well, you said conversion. Just to make a mistake, it might not meet all the requirements of conversion. I don't know off the top of my head what all the requirements for conversion are. But let's say, for example, the company president decides to fly to Europe with his family. And so he taps into my account and says, you know, I don't have enough miles myself. But if I sort of tap into various customer's accounts, I take a few miles here, a few miles here, I can accumulate enough miles for me and my family to fly to Europe. I'm hypothesizing because it's preposterous, but just imagine. Then I think that that probably would be conversion. I mean, it would have been a willful act. It would have been designed to sort of steal the miles. The fact that the miles are nothing but intangibles, it just doesn't -- They're not widgets; they're not things that you can actually bring into court under replevin and hand them over to the plaintiff, right? I guess what you have to show, it seems to me, if you want to say an analogy doesn't work-- And sometimes an analogy loses force when you move from the physical world to the intangible world. It loses some material thing that makes that kind of conversion difficult or questionable. But in this case I haven't seen any reason why it shouldn't be applied directly. ERIC GOLDMAN: One of the other places it comes up that I deal with is in the area of what I'll call virtual worlds. I don't know if you're familiar with them or if you've dealt with them. These can be things like online games where people are interacting with each other, and they might be building characters in that game. They might be building assets within that game, things like weapons if they're in a war simulation, or they might be building things -- Like in a game like Second Life, they might be building virtual property, locations in that space or chattel within that space. It's all electronic, but it has -- JUDGE ALEX KOZINSKI: I'll give you a very good example. My son used to get on this game online and get points and sell them on eBay. I sold a bunch of his points on eBay, so this is -- you get so many life points. I don't even know what these points were. But people who bought them knew what they were. And the way it works is they buy them from you. And the deal is that you then make a date with someone in the game and the two characters meet. And then the selling character hands over to the buying character so many life points or so many wealth points or whatever. So what can be sold can surely be stolen. I don't have any difficulty at all in saying, if you're in a situation like that and you're playing this game and you've got these sort of life points accumulated and then somebody comes along and steals them other than as permitted by the rules of the game -- As you know, there are games where part of the game is protecting yourself from robbers and from being stolen, and it has certain life aspects to it. And if it's within the rules of the game that you might get attacked by robbers and probably taken away from you, that's the game. But if somebody circumvents the rules of the game and somehow you log in one day and instead of having 150,000 points, all of a sudden you only have 50 points because somebody has taken those points away, well, those are points I can sell on eBay. I can turn into US dollars, or at least PayPal, which is even better in some ways. ERIC GOLDMAN: Let me just give the denouement of the sex.com case and then we'll turn it over to your questions. So denouement, so we have the rogue actor Cohen, who fled to Tijuana. He was caught by the Mexican police in October of 2005 and extradited up here. And this was actually based mostly, if I understand it correctly, on a contempt order. The judge said you had to do certain things and he simply refused to do so. So he stayed in jail for contemp, and, among other things, the judge required him to disclose more information about the money that he squirreled away while he was in possession of sex.com and he refuses to do so. So it's my understanding, at least as of August of 2006, that Cohen is still sitting in jail, still in possession of his cash, but not in possession of his liberty. So with respect to Network Solutions, which lost its judgment saying that they were potentially eligible for conversion by having made this swap of the domain name, but it had to go back down to the trial court to find whether or not they'd actually fulfilled all the elements, Network Solutions settled that case. The settlement's confidential, but the news reports I saw said that the judgment was somewhere between $15 and $20 million, which was a pretty big payday for Network Solutions and, of course, for Kremen. Kremen then, after having gotten paid once for the conversion of his domain name, flips the domain name to a new company called Escom, which he sold the rights for $14 million. So he actually got a double windfall on that domain name. Escom, the company I know nothing about, is now in possession of the domain name. They have done a licensing deal with Playboy Entertainment. And so when I investigated sex.com last night, please don't tell my wife, I got Playboy-sponsored content available at that domain name. So the sex.com story, I think, is far from over. We will continue to hear about it.