In a precedent-setting Feb. 2 decision, the Minnesota Court of Appeals ruled that websites and domain names constitute property that may be garnished under state law. The appeals court remanded the case to the district court to make additional findings.
In the case, Sprinkler Warehouse Inc. filed a lawsuit against Systematic Rain in Texas and charged that it infringed on its copyrighted material by using it without authorization on Systematic Rain's website. A default judgment was entered in Texas and later docketed against Systematic Rain in Minnesota.
The Appeals Court found that a domain name must be registered for a number of years, involves a contract between the registrar and an individual or business, payment is made for domain name registration and the right to use a specific domain may end involuntarily, among other things. It concluded that a company's domain name is an asset with measurable value. In fact, some domain names may constitute intellectual property because website visitors associate that name with the entity whose website is connected to the domain name.
The Court also reviewed the elements that make up a website such as source documents, multimedia content and the scripts that operate interactive website features. It ruled that these elements constitute property to the extent that they are copyright-protected material.
Copyrights have the attributes of personal property such as the owner's right to exclude others from using the property. Therefore, Minnesota law only allows garnishment of the parts of the website that are copy-right protected.
In the case, the appellate court also addressed whether a judgment creditor may reach the domain name and copyrighted-protected value in a website. The creditor should ask that a court appoint a receiver and force the garnishee to transfer property ownership to the receiver for sale.
On remand, the district court has to determine whether Systematic Rain was the property owner, whether Systematic Rain's CEO was the proper garnishee because of his control of the website and domain name, whether Systematic Rain made fraudulent transfers of the domain name and website and whether there are parts of the website that cannot be garnished such as content licensed by other parties who still own that material.
Intellectual property, licensing and garnishment are among the many issues that should be considered as part of business planning. Proper resolution of these issue may require experienced legal assistance.