VeriSign Faces Suit Over Stolen Sex Site

Gary Kremen won a major legal victory Friday in his long and expensive fight to be reimbursed for what may well be history’s greatest theft of virtual property.

Kremen had the foresight to register the domain name “sex.com” in 1994 -- and the misfortune to have it swindled away from him in 1995. All it took was a forged letter from a con man to convince Internet registrar Network Solutions Inc. that ownership had changed hands.

It hadn’t. And so, a three-judge panel of the U.S. 9th Circuit Court of Appeals ruled Friday, Kremen may sue and attempt to recoup damages from Network Solutions, now part of Mountain View, Calif.-based VeriSign Inc.

Kremen -- described by the appeals panel as a “computer geek turned entrepreneur” -- had tried to wrest away the estimated $40 million that Stephen Michael Cohen, the domain-name thief, made from sex.com. A court ordered Cohen to hand over $65 million in compensatory and punitive damages, but he went on the lam instead. So Kremen moved into Cohen’s stripped-down mansion in Rancho Santa Fe and offered a $50,000 reward for his capture.

As U.S. Circuit Judge Alex Kozinski noted in the panel’s opinion, Cohen “has skipped the country and his money is stashed in some offshore bank account. Unless Kremen’s luck with his bounty hunters improves, Cohen is out of the picture.” (Though not out of mind: Kremen said Cohen called to taunt him this week, ostensibly from the south of France.)

The appeals court overturned a lower court ruling that Network Solutions couldn’t be held liable for the theft of sex.com because Internet names aren’t tangible property. By the lower court’s logic, Kozinski wrote, the crime of “torching a company’s file room” would be treated differently from the crime of “hacking into its mainframe and deleting data.”

If Kremen wins damages, there may be consequences for Network Solutions. It could become a target for other wronged domain-name owners, Kremen’s attorney, James Wagstaffe, said, adding that Friday’s ruling also could aid victims of electronic fraud and identity theft.

VeriSign declined to comment. Its shares slipped 12 cents Friday to $12.46 on Nasdaq.

The sex.com saga started so long ago that Kremen didn’t pay a penny to register what would become one of the most lucrative -- and one of the most contested -- Internet domiciles. Harking back to 1994, Kozinski wrote: “ ‘Sex on the Internet?’ they all said. ‘That’ll never make any money.’ ”