Case 3:18-cr-04683-GPC Document 222 Filed 11/23/20 PageID.2293 Page 1 of 10
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`
`ROBERT S. BREWER, JR.
`United States Attorney
`MELANIE K. PIERSON
`SABRINA L. FEVE
`ASHLEY E. GOFF
`Assistant United States Attorney
`California Bar Nos. 112520/226590/299737
`880 Front Street, Room 6293
`San Diego, CA 92101-8893
`Tel: (619) 546-6786
`Sabrina.Feve@usdoj.gov
`Attorneys for the United States
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`
`
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`
`
`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF CALIFORNIA
`
`Case No. 18cr04683-GPC
`UNITED STATES OF AMERICA,
`
`
`
`Plaintiff,
`GOVERNMENT RESPONSE IN
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`OPPOSITION TO DEFENDANTS’
`v.
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`SUPPLEMENTAL BRIEF IN
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`SUPPORT OF MOTION TO DISMISS
`JACOB BYCHAK (1),
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`
`
`MARK MANOOGIAN (2),
`MOHAMMED ABDUL QAYYUM (3),
`Honorable Gonzalo P. Curiel
`PETR PACAS (4),
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`
`Date: December 17, 2020
`
`Defendants.
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`Time: 1:00 p.m.
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`
`
`INTRODUCTION
`I.
` The key to whether any particular bundle of rights is “property” for purposes of
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`wire fraud is an analysis of the characteristics of those rights, not the form in which they
`appear (e.g., IP addresses or excise taxes). When the characteristics of the rights of IP
`address holders are analyzed, they fit well within traditionally recognized species of
`property. Pasquantino v. United States, 544 U.S. 347 (2005).
`II.
`STANDARD OF REVIEW FOR VAGUENESS CHALLENGES
`
` “Courts ordinarily do not consider whether a statute is void on its face unless a
`defendant first demonstrates that the challenged statute implicates the First
`Amendment.” United States v. Bychak, 441 F. Supp. 3d 1003, 1008 (S.D. Cal. 2020).
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`When a case does not involve the First Amendment, the challenge must be on an as-
`applied basis. Id. at 1009, 1013. Pre-trial challenges brought on an as-applied basis
`require consideration of facts and are thus premature. Id. at 1013; see also Defs. Mot.
`Dismiss, ECF 169-1 at 7 n.2 (recognizing an as-applied challenge would be premature).
`“The rule of lenity plays no role in statutory interpretation unless the statute is truly
`ambiguous.” Bychak, 441 F.Supp.3d at 1015 Defendants do not allege a First
`Amendment claim or challenge the statute itself, rather they acknowledge that their
`challenge is a new form of as-applied challenge to the indictment. ECF 169-1 at 7 n.2.
`A pre-trial motion to dismiss may be “capable of determination before trial if it
`involves questions of law rather than fact.” United States v. Shortt Accountancy Corp.,
`785 F.2d 1448, 1452 (9th Cir. 1986). However, the Court and defense counsel’s
`repeated references to an incomplete description of ARIN’s position regarding IP
`addresses holders’ possessory rights demonstrate that disputed factual issues exist
`outside the four corners of the indictment that the Court must decide and, at the very
`least, has actively considered.1 Those factual issues cannot be decided pre-trial because,
`when determining whether an indictment charges a cognizable offense, the court
`“cannot consider evidence that does not appear on the face of the indictment.” United
`States v. Kelly, 874 F.3d 1037, 1047 (9th Cir. 2017).
`ARIN’s role in registering IP addresses makes its representative a significant trial
`witness on many factual issues, including those repeatedly invoked by the Court and
`defense counsel. Additional evidence at trial will show that defendants believed that IP
`addresses were property. See Gov. Oppo. Mot. Dismiss, ECF 176 at 38-41 (previewing
`
`1 See Ex. A, which compiles sample references (Judge Curiel: “ARIN has gone on record as
`stating that these IP netblocks are not property[,]” and “because [the Court] has this
`background with ARIN and their observations, it does lead me to want to address this earlier
`rather than later.” Tr. of Oral Arg. at 69:14-15, 79:7-9, ECF No. 203 (July 16, 2020).) To the
`extent the Court is considering ARIN’s position, ARIN has provided a brief declaration to
`supplement their position before the Court. See Amend. Decl. John Curran (Nov. 23, 2020)
`(filed concurrently).
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`Gov. Opp. to Defs.’ Supp. Br. in Support of Mot. to Dismiss
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`trial evidence that Defendants believed IP addresses were property). Defendants sent
`emails repeatedly referring to netblocks as something “we own” and the domain name
`purchase agreements through which they took control of the netblocks included the IP
`addresses as “related intellectual property.” See id. Only after there is a full and accurate
`record regarding the IP address holders’ rights and interests should the Court decide
`defendants’ as-applied challenge. Until then, their motion is premature.
`III.
`IP ADDRESSES EMBODY PROPERTY RIGHTS
`
`The Supreme Court, in Pasquantino v. United States, 544 U.S. 347 (2005),
`applied a three-part analysis to rule that Canadian excise taxes are property for purposes
`of wire fraud. First, it looked at the nature of the possessory rights and evaluated
`whether those rights aligned with “‘property’ as that term ordinarily is employed.” 544
`U.S. at 355. Second, it considered whether the property right at issue was consistent
`with common law in order to “confirm[]” that it was indeed a property interest. Id.
`Third, it determined whether the property right existed in the hands of the victims and
`distinguished its facts from those in Cleveland v. United States, 531 U.S. 12 (2000).
`Under Pasquantino’s three-step analysis, IP addresses also embody property
`rights. First, using the term’s ordinary meaning, “property” is “every species of valuable
`right and interest.” Pasquantino, 544 U.S. at 355-56 (emphasis added). The right and
`interest inherent in Canadian excise taxes was a right to collect money. This right was
`“something of value” and a “valuable entitlement,” and therefore property. Id. (quoting
`McNally v. United States, 483 U.S. 350, 358 (1987)); see also Kelly v. United States,
`140 S. Ct. 1565, 1573 (2020). Emphasizing that it was the characteristic of the right that
`mattered, the Supreme Court found that avoiding Canadian excise taxes was no different
`from “embezzl[ing] funds from the Canadian treasury.” Pasquantino, 544 U.S. at 356.
`The rights and interests inherent in IP addresses include the right to exclusive
`use, registry rights, and the right to sell or transfer. See Amend. Curran Decl. at ¶ 4.
`Each of these rights is valuable. The evidence at trial will show that Defendants paid
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`Gov. Opp. to Defs.’ Supp. Br. in Support of Mot. to Dismiss
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`Case 3:18-cr-04683-GPC Document 222 Filed 11/23/20 PageID.2296 Page 4 of 10
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`hundreds of thousands of dollars to use the subject netblocks. See Gov. Oppo. Mot.
`Dismiss, ECF 176 at 41. When their first and only attempt to change a netblock’s
`registry entry failed, they tried to get money back. Legitimate sales of similar pre-ARIN
`netblocks have fetched millions of dollars.2 These rights are no different from the rights
`and interests of other assets, both intangible and capital. See ASSET Black’s Law
`Dictionary (11th ed. 2019);3 DHL Corp. and Subsidiaries v. C.I.R., 285 F.3d 1210, 1224
`(9th Cir. 2002) (intangible assets can be used); In re P.R.T.C., Inc., 177 F.3d 774, 778-
`79 (9th Cir. 1999) (intangible assets can be sold) C.I.R. v. Seaboard Finance Co., 367
`F.2d 646, 650-51 (9th Cir. 1966) (same); DeLorean v. DeLorean Motor Co., 792
`Fed.Appx. 227, 229 (3d Cir. 2019) (intangible assets can be registered); Woodward v.
`C.I.R., 397 U.S. 572, 575 (1970) (capital assets, which “hav[e] a useful life substantially
`beyond the taxable year,” can be acquired and disposed of). Therefore, the rights in IP
`addresses, like other transferable assets, are a “species of valuable right and interest.”
`Second, common law confirms the characterization of IP addresses as property.
`In Kremen v. Cohen, 337 F.3d 1024, 1035 (9th Cir. 2003) (“Kremen III”), the Ninth
`Circuit expressly applied common law to find that domain names, which are “an
`alphanumeric shorthand for IP addresses,” Office Depot Inc. v. Zuccarini, 596 F.3d 696,
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`2 To the extent there is any dispute or question about the existence, scope, or value of these
`rights, it underscores why this motion is premature. See Def.’s Supp. Br., ECF No. 221 at 8
`(“The Government has at various times argued that the right to use IP netblocks is ‘property’
`because it is ‘something of value’ or carries with it a right of ‘exclusivity.’ Set aside the fact
`that these characteristics . . . will be disputed at trial.”).
`
` Black’s Law Dictionary (11th ed. 2019) defines intangible assets and capital assets as:
`intangible asset. (1899) Any nonphysical asset or resource that can be amortized or
`-
`converted to cash, such as patents, goodwill, and computer programs, or a right to
`something, such as services paid for in advance.
`- capital asset. (1908) [] A long-term asset used in the operation of a business or used to
`produce goods or services, such as equipment, land, or an industrial plant . . . Excluded
`from the definition are, among other things, stock in trade, inventory, and property held
`by the taxpayer primarily for sale to customers in the ordinary course of trade or business.
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`Gov. Opp. to Defs.’ Supp. Br. in Support of Mot. to Dismiss
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`698 (9th Cir. 2010), are “a species of property.” Kremen III made this finding via a
`three-part test “to determine whether a property right in domain names exists: ‘First,
`there must be an interest capable of precise definition; second, it must be capable of
`exclusive possession or control; and third, the putative owner must have established a
`legitimate claim to exclusivity.’”4 337 F.3d at 1030 (citation omitted). Applying this
`test, Kremen III held that domain names “satisfy each criterion.” Id. Endorsing this
`logic, CRS Recovery, Inc. v. Laxton, 600 F.3d 1138, 1142 (9th Cir. 2010) reiterated that
`domain names, which “are subject to the same laws as other types of intangible
`property,” are a valuable property interest under common law.
`Like the domain names at issue in Kremen III, IP addresses satisfy common law’s
`three-part test.5 First, like “a share of corporate stock or a plot of land,” an IP address
`“is a well-defined interest. Someone who registers” an IP address “decides where on
`the Internet those who invoke that particular IP address . . . are sent.” 337 F.3d at 1030.
`Second, IP addresses are capable of exclusive possession and control. For the Internet
`to work, “each domain name must be unique and correspond to a unique Internet
`Protocol number.” Thomas v. Network Sols., Inc., 176 F.3d 500, 503–04 (D.C. Cir.
`1999); see also Kremen v. Cohen, 325 F.3d 1035, n. 8 (9th Cir. 2003) (“Kremen II”) (IP
`addresses are “sets of numbers that uniquely identify each computer connected to the
`Internet.”). Third, IP addresses are publicly registered, which “like staking a claim to a
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`4 While the third prong used the word ownership, Kremen III framed the overarching test as
`one to determine “ownership or right to possession of property,” 337 F.3d at 1029 (emphasis
`added), and recognized that domain names, like IP addresses, were registered even if not
`conventionally owned. Id. n. 5; see also CRS Recovery, Inc. v. Laxton, 600 F.3d 1138, 1140-
`42 (9th Cir. 2010) (endorsing the Kremen III three-part test and the conclusion that domain
`names are common law property even though domain names are registered and renewed on a
`periodic basis, rather than owned in perpetuity).
`
`5 Kremen III and the United States’ discussion thereof take no position on whether country-
`code top level domains (e.g., .is for Iceland), warrant distinct legal analysis. This point of
`clarification, however, has no bearing on the issue now before the Court.
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`Gov. Opp. to Defs.’ Supp. Br. in Support of Mot. to Dismiss
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`plot of land at the title office . . . . informs others that” the IP addresses “are the
`registrant’s and no one else’s.” Kremen III, 337 F.3d at 1030.
`IP addresses and domain names embody the same set of rights and are an
`intertwined feature of how people access the Internet. Under common law, their
`common characteristics are what matter, not the form they take. Pasquantino cited
`Blackstone recognizing “a right to sue on a debt as personal property” as confirmation
`that a “right to excise taxes” was property, even though these rights took different forms.
`544 U.S. at 356. IP addresses, like domain names, embody common law property rights
`and are therefore a “species of property” that satisfy Pasquantino’s second step.
`IP addresses, once allocated, also satisfy Paquantino’s third step. IP addresses,
`like excise taxes and unlike an “unissued video poker license,” are a “straightforward
`‘economic’ interest.” Pasquantino, 544 U.S. at 357; see also Cleveland, 531 U.S. at 22
`(“Licenses pre-issuance do not generate an ongoing revenue stream.”), 23 (“the State
`may not sell its licensing authority”). IP addresses, unlike an unissued video poker
`license, can be used, registered, and sold. IP addresses are thus an “asset” that the
`possessor “may trade or sell in the open market,” which Cleveland recognized as
`“traditional concepts of property.” 531 U.S. at 24.
`Being an intangible asset subject to regulatory oversight does not change the
`Supreme Court’s recognition of IP address holder’s possessory interests. Cleveland
`distinguished both the “Federal Government’s interest in an unissued patent” from “a
`patent holder’s interest in an unlicensed patent,” and Louisiana’s authority to issue
`licenses from a licensee’s interest in the license, based on its recognition that the latter
`interests were property and the former interests were not. Id. at 23-24, n.5; see also G.S.
`Rasmussen & Asscs., Inc. v. Kalitta Flying Serv., Inc., 958 896, 906-07 (9th Cir. 1992)
`(“regulations confer exclusive privileges on the holder of” a government-issued
`certificate, including “transfer and licensing,” thereby making it property under
`common law). Regardless of what ARIN’s interests in IP addresses may be, like a
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`Gov. Opp. to Defs.’ Supp. Br. in Support of Mot. to Dismiss
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`licensee and a patent holder, IP address registrants have a recognized economic right to
`use, register, and sell their IP addresses. See Kremen III, 337 F.3d at 1030; G.S.
`Rasmussen, 958 F.2d at 906-07; Amend. Curran Decl. at ¶ 4; see also Wendy J.
`Gordon, An Inquiry into the Merits of Copyright: The Challenges of Consistency,
`Consent, and Encouragement Theory, 41 Stan. L. Rev. 1343, 1361–64 (1989)
`(discussing myriad ways public policy and law can limit possessory rights without
`vitiating a property interest under common law). Because IP addresses convey
`traditional rights in the hands of their registrants, “Cleveland is therefore consistent with
`[the] conclusion that” IP addresses, like foreign excise taxes, are “‘property’ as that
`word is used in the wire fraud statute.” Pasquantino, 544 U.S. at 357.
`IV.
`IP ADDRESSES PASS ANY “TRADITIONAL RECOGNITION” TEST
`
`To the extent that defendants argue United States v. Henry, 29 F.3d 112 (3d Cir.
`1994), United States v. Hedaithy, 392 F.3d 580 (3d Cir. 2004), and Cleveland, which
`were decided before Pasquantino, impose a “traditional recognition” test beyond
`Pasquantino’s three-step analysis, IP addresses satisfy that test. “Tradition” and
`common law are synonymous. E.g., Tr. of Oral Arg. at 6:1, ECF No. 215 (Oct. 1, 2020)
`(the Court referred coextensively “to how common law or how tradition” view
`property); Pasquantino, 544 U.S. at 359-61 (treating “the common-law revenue rule”
`and “actions traditionally barred by the revenue rule” as the same). Under both,
`“[p]roperty is a broad concept that includes every intangible benefit and prerogative
`susceptible of possession or disposition.” Kremen III, 337 F.3d at 1030; Pasquantino,
`544 U.S. at 355-56 (“property” is “every species of valuable right and interest”). The
`facts at trial will show that IP address holders enjoy valuable property rights, regardless
`of ownership, and that ARIN recognizes these rights. See Amend. Curran Decl. at ¶ 4.
`Defendants’ argument that IP addresses are not “traditionally recognized as
`property” is legally unsupported for three reasons. First, common law tradition
`recognizes rights, not the particular technological form they take. Second, because
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`Gov. Opp. to Defs.’ Supp. Br. in Support of Mot. to Dismiss
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`common law recognizes rights rather than form, it accommodates new technologies.
`Third, the focus on rights, rather than form, satisfies due process.
`First, common law and the wire fraud canon6 analyze the characteristics of the
`property rights and interests at issue, not the form they take. Whether courts have
`historically recognized IP addresses as property is therefore not the relevant question.
`The essential question is whether common law has recognized the rights embodied
`therein. By late December 2010, when the charged conduct began, the Ninth Circuit
`had firmly established that the rights embodied in domain names, which are IP
`addresses’ “alphanumeric equivalent,” were traditional common law property rights in
`California. See, e.g., CRS Recovery, 600 F.3d at 1142; Zuccarini, 596 F.3d at 701-02;
`Kremen III, 337 F.3d at 1035; Express Media Grp., LLC v. Express Corp., No. C 06-
`03504 WHA, 2007 WL 1394163, at *1-2 (N.D. Cal. May 10, 2007). Moreover, United
`States v. Ali, 620 F.3d 1062, 1065-68 (9th Cir. 2010), had rejected the argument that a
`“software distribution system” was not a “traditionally recognized form[] of property”
`because, under Pasquantino, it was the property right that mattered; see also
`Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1003 (1984) (property “denote[s] the
`group of rights inhering in the citizen’s relation to the physical thing, [i.e.] the right to
`possess, use and dispose of” rather than the thing itself) (citation omitted). The rights
`inherent in IP addresses therefore satisfy any “traditional recognition” test beyond
`Pasquantino’s three-step analysis.
`Second, defendants’ argument implies that new technologies, by being modern,
`can never satisfy a “traditional recognition” test. By late 2010, the Ninth Circuit and
`two state Supreme Courts had expressly shown otherwise. See CRS Recovery, 600 F.3d
`at 1139 (“This case requires application of traditional choice-of-law, tort, and property
`principles to . . . a dispute over the ownership of an Internet domain name.); Kremen II,
`325 F.3d at 1053 (Kozinksi, J. dissenting) (“Whether NSI's .com registry is a document
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`6 Kelly, Pasquantino, Cleveland, Carpenter v. United States, 484 U.S. 19 (1987), and McNally.
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`in which intangible property rights are merged is a hard technical question, not a hard
`legal one. It’s a matter of coming up with the right analogy, and that has more to do
`with understanding how the Internet works than with state property law.”); Thyroff v.
`Nationwide Mut. Ins. Co., 8 N.Y.3d 283, 292 (2007) (“[T]he protections of the law
`should apply equally to both forms—physical and virtual” and common law “must keep
`pace with the contemporary realities of widespread computer use”); Network Sols., Inc.
`v. Umbro Int'l, Inc., 259 Va. 759, 759 (2000) (“[W]e ‘apply traditional legal principles
`to [a] new avenue[ ] of commerce,’ to address whether “an Internet domain name can
`be garnished.”) (citation omitted); see also Terarecon, Inc. v. Fovia, Inc., No. C 05-
`4407 CW, 2006 WL 1867734, at *9 (N.D. Cal. July 6, 2006) (applying Kremen III’s
`common law test to find that computer code was property); F. Gregory Lastowka &
`Dan Hunter, The Laws of the Virtual Worlds, 92 Cal. L. Rev. 1, 43 (2004) (“The
`objections to virtual property on the basis that it is intangible or impermanent are
`descriptively implausible. Our property system cheerfully accommodates these
`characteristics, in one form or another, in various types of property interests.”). Contrary
`to defendants’ argument, common law tradition regularly accommodates technological
`innovation.
`Third, defendants’ due process arguments are baseless. Neither wire fraud nor
`common law requires a prior case or treatise to establish the form that property rights
`take. The indictment in Pasquantino charged a wire fraud scheme to avoid Canadian
`excise taxes by smuggling liquor into Canada between 1996 and 2000. 544 U.S. at 353.
`Pasquantino granted certiorari to resolve a Circuit split involving identical Canadian
`smuggling schemes because, in 1996, the First Circuit ruled that foreign excise taxes
`were not property and, in 1997 and 2003, the Second and Fourth Circuits, respectively,
`ruled they were. Id. at 354. In 1996, when Pasquantino’s scheme began, the only
`Circuit-level decision, United States v. Boots, 80 F.3d 580, 586-87 (1st Cir. 1996), held
`that wire fraud charges could not be brought for evading excise taxes. Yet Pasquantino
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`affirmed subsequent convictions on identical charges. If wire fraud charges are valid
`despite the only Circuit Court decision existing at the start of the scheme holding that
`the right in question is not property, then they can also be valid when there is no decision
`holding the rights in question are property. Here, however, Kremen v. Cohen, No. C 98-
`20718, Docket #1250, *1, 3 (N.D. Cal. Dec. 20, 2006), recognized the traditional
`property rights embodied in IP addresses, namely use, registration, and transferability.
`Following the $65 million judgment the plaintiff Gary Kremen secured against the
`defendant for stealing his domain name, the district court ordered the transfer of
`defendant’s available assets, namely four netblocks, to Kremen to offset the judgment.
`Id. This decision awarding Kremen the right to register, use, and transfer IP addresses
`came three years after Kremen III found, without relying on any prior domain name
`decision, that domain names were property under common law. 337 F.3d at 1030. Thus,
`by 2006, California courts had recognized that both domain names and IP addresses
`conveyed valuable rights to their registrants.
`VI. CONCLUSION
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`For the reasons outlined above, the Court should deny Defendants’ motion to
`dismiss, without prejudice to consideration of any such argument via a Rule 29 motion
`after the government has had the opportunity to present evidence at trial.
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`DATED: November 23, 2020
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`Respectfully Submitted,
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`ROBERT S. BREWER, JR.
`United States Attorney
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`________________________
`SABRINA L. FEVE
`Assistant United States Attorney
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`-10-
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`Gov. Opp. to Defs.’ Supp. Br. in Support of Mot. to Dismiss
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