Blockchain Domain Names Yield Novel Legal Difficulties   .. A combination of legal, business and technological approaches is best used to address blockchain domain name legal difficulties.

New Jersey Law Journal         March 24, 2022

By Jonathan Bick   Jonathan Bick is counsel at Brach Eichler in Roseland, and chairman of the firm’s Patent, Intellectual Property & Information Technology group. He is also an adjunct professor at Pace and Rutgers law schools.

Blockchain domain names, a new set of domain names, are ripe for cryptocurrency legal abuse and generally not susceptible to traditional legal amelioration. These domain names are stored on blockchains which are inaccessible without special software or settings, making them difficult to shut down or even identify their owners. Consequently, a combination of legal, business and technological approaches is best used to address blockchain domain name legal difficulties.

The Internet requires users to have unique Internet addresses to enable Internet users to find each other. Traditional domain naming coordinates these unique addresses in accord with the domain name system (DNS). DNS requires an accreditation system wherein organizations (registrars) hold identifiable Internet domain name owners accountable for the actions of their users and may terminate Internet domains if they are not.

Blockchain domain name systems, like traditional domain name systems, are naming systems for Internet resources, including computers and services. Both traditional and blockchain systems provide a naming method that is compliant with protocols throughout the Internet.

For example, DNS translates the Internet address 74.125.239.82 into www.google.com domain name and www.amazon.com domain name into address 205.251.242.54. The blockchain domain name systems turn blockchain resources such as a cryptocurrency wallet which might look like “0x243add14edbd9f43fb5db0149c7ed24c43f55941,” into domain name Bick.bitcoin and Bick.crypto domain name into “1x648add32abcd5f43kp3cgb03259c7hd24b43f335.”

However, while traditional domain name systems are transparent and regulated due to DNS, blockchain domain name systems are neither. Blockchain domain names are generated by anonymous unregulated domain-generating algorithms.

Many such algorithms make use of networks of computers that have been intentionally infected with a malicious software by the algorithm’s creators. This adds an additional layer of anonymity to blockchain domain name users, increasing the time and cost necessary to identify such users. 

The two main ways criminals obtain cryptocurrency are stealing it directly from crypto wallets, or using a scheme to trick people into allowing third-party use of crypto wallets. More than $3 billion of cryptocurrency was lost in 2021.

Blockchain domain names are customarily associated with unique blockchain domains. These domains are suites of smart contracts that are located on a public blockchain which makes them widely accessible and of an anonymous source. Blockchain domains can work as a naming registry for crypto wallet addresses, or they can point to content hosted on the blockchain, like a website wherein blockchain domain names may be secured anonymously.

Blockchain domain names with extensions such as “.bitcoin,” “.crypto,” “.nft” and “.eth” are usually associated with Internet cryptocurrency. They are also used as token wallet service providers to memorialize the ownership of cryptocurrency and other fungible tokens, as well as digital intellectual property and other non-fungible tokens. 

Some of these networks are generating blockchain domain names under the .bit blockchain top-level domain, and thereby creating unregulated domain names that are not subject to DNS policing. The lack of registration makes disclosure of the bad actors’ identity very difficult for jurisdictional, summons and complaint purposes.  

Due to the unregulated domain generation, blockchain domain names are not subject to the same protocols and regulations as traditional domain names. Consequently, most administrative and judicial remedies that are readily applied to traditional domain names are typically not effectively applied to blockchain domain names.

For example, unlike a traditional domain name, a blockchain domain name is not easily vulnerable to traditional legal remedies such as trademark infringement causes of action because the bad actors normally cannot be identified or located. Alternative dispute resolution procedures such as ICANN’s Uniform Domain Name Dispute Resolution Policy (UDRP) are equally ineffective because authorities do not have the special software or settings to unilaterally modify or terminate the blockchain domain name.

Blockchain domain names are not created via DNS and therefore not subject to the DNS terms of use. DNS terms of use allow domain name termination (and involuntary domain name transfer) in the event of any of the following: violating criminal law; infringing patent, trademark or copyright rights; and unauthorized access to another’s system.

Not compliant with DNS, blockchain domain names are not subject to UDRP. Most importantly, blockchain domain names not being generated via DNS are not susceptible to DNS technological means for termination or involuntary transfer (once they have been distributed to the initial owner).

While purely legal remedies are largely ineffective due to the anonymous, decentralized, and unregulated nature of the blockchain domain names, combining existing legal remedies with technological and business actions have proved to be effective. Such a combination strategy is particularly useful against blockchain domain names that incorporate trademarks.

The first option is to combine technology resources with a legal solution. Blockchain domain names can be traced and tracked. Contrary to popular belief that bitcoins are an anonymous way to move money, many firms have built software that can track the movement of cryptocurrency and tokens. Once a bad actor’s identity is known and the location of the server in which the blockchain domain name software or settings is found, an appropriate complaint in the proper jurisdiction may be implemented in accordance with traditional legal remedies.

A second option is to combine business resources with a legal solution. Crypto-exchanges and crypto-wallets may provide insurance against loss. Alternatively, cryptocurrency users may secure third-party loss insurance. In either case, the aggrieved cryptocurrency user may be made whole by first executing traditional insurance contracts and seeking traditional court enforcement if necessary. 

A third option is to combine existing legal rights with an administrative solution. While existing blockchain domain naming companies do not offer trademark holders a way to object to a third party registering a blockchain domain that incorporates a trademark, a trademark holder may pre-empt said third party by registering a blockchain domain that incorporates a trademark. If the domain naming service fails to allow the trademark holder to proceed, traditional Lanham Act and other trademark infringement causes of action are available.

It should be noted that blockchain domain name services have taken steps to reserve domain names that include registered trademarks. This suggests that firms have yet another reason to register their trademarks.

A fourth option is to combine notice communications with the potential of traditional legal action. For example, firms (particularly those with registered trademarks) may want to put blockchain domain name services on notice of the potential damage associated with allowing the registration of blockchain domain names that incorporate a specific trademark. Such specific notice may be incorporated into future legal action, including intentional trademark infringement wherein the Lanham Act provides for three categories of damages that the court may award to a successful plaintiff: (1) actual damages, (2) disgorgement of the infringer’s profits, and (3) attorney fees and costs. 

A fifth option is to combine novel blockchain domain name John / Jane Doe complaints with traditional legal actions. A Doe subpoena is a subpoena that seeks the identity of an unknown defendant to a lawsuit. Most jurisdictions permit a plaintiff who does not yet know a defendant’s identity to file suit against John / Jane Doe and then use the tools of the discovery process to seek the defendant’s true name.

While blockchain domain name owners and users are not likely to publicize their identity, the blockchain domain name service provider normally knows their identity. While a blockchain domain name service provider may be unwilling to voluntarily disclose blockchain domain name ownership, John /Jane Doe complaints may be used to compel the disclosure. This information will allow traditional legal action.

A sixth option is to employ blockchain procedures with traditional legal actions. While blockchain domain names can’t be destroyed or changed (except by the owners, who are normally unwilling to do so), there are blockchain procedures for disabling blockchain domain names, such as “burning.” More specifically, a trademark owner in an in rem action under the ACCPA, can ask a court to order a blockchain naming service provider to “burn” a blockchain domain name. This order requires the blockchain naming service provider to disable a link from an infringing domain name to a blockchain and thereby disable the functionality of the domain name.