IP Addresses for IP Attorneys: A Primer on Emerging Issues

IP attorneys: meet IP address ownership, the next-generation property dispute.

Every device that connects to the internet, from laptops to smart phones, is assigned a unique address called an internet protocol address. The IP address allows the device to communicate with other devices on the Internet.

Unlike domain names, IP addresses typically receive little attention from litigants and the courts. A battle is brewing, however, over IP address ownership rights. Three groups stand divided:

• those who believe that IP addresses may be owned, bought, and sold as property;
• those who believe that IP addresses do not constitute property, but rather are shared identifiers like phone numbers; and
• those who simply wait for clarity on the issue, unsure of their rights.

So far, the ownership question remains unanswered by the courts. Indeed, no court has directly addressed the issue of property rights in IP addresses. Meanwhile, individuals and companies continue to sell or transfer (or consider selling or transferring) large blocks of IP addresses without a clear understanding of what or who may regulate or restrict such transactions.

ICANN, ARIN, and the Legacy RSA

The Internet Corporation for Assigned Names and Numbers, a nonprofit organization, manages and coordinates the Domain Name System and oversees the distribution of unique IP addresses and domain names. ¹What is ICANN?, http://www.icann.org/en/faq/#WhatisICANN (last visited June 3, 2011). To assist with worldwide IP address allocation, ICANN designated five regional IP address registries. The American Registry for Internet Numbers Ltd., or ARIN, has been the sole authorized administrator of IP addresses in North America since 1997. ²ARIN at a Glance, https://www.arin.net/about_us/overview.html (last visited June 3, 2011).

All IP addresses obtained in North America after ARIN’s 1997 appointment are subject to the terms of ARIN’s service agreements, which place a number of restrictions on IP address holders, including restrictions on the transfer of IP addresses. It is unclear, however, whether IP addresses obtained pre-1997, known as “legacy addresses,” are subject to ARIN’s authority. ARIN does not explicitly claim control over legacy addresses, but it has not clearly admitted to a lack of authority either. ³Marc Lindsay, Protect Your pre-1997 IP Addresses, ComputerWorld (Dec. 10, 2010), http://news.idg.no/cw/art.cfm?id=D215718D-1A64-6A71-CE2E8E02A49ECC8A (last visited June 3, 2011); Stephen M. Ryan, Legal & Policy Aspects of Internet Number Resources, 24 Santa Clara Computer & High Tech. L.J. 335, 370-373 (2008). In fact, ARIN encourages legacy-address holders to voluntarily submit to ARIN’s authority by executing a service agreement known as the Legacy Registration Services Agreement or “Legacy RSA.” ⁴Lindsay, supra note 3.

ARIN touts the Legacy RSA as a contractual guarantee of certain benefits, including the grandfathering of certain protected rights and reduced annual fees. ⁵Id. ARIN sent the Legacy RSA to known legacy address holders with a “deadline” of Dec. 31, 2011, by which to sign the agreement. ⁶Legacy Registration Services Agreement, https://www.arin.net/resources/legacy/ (last visited June 3, 2011). It is unclear what will happen to non-compliant legacy holders after the deadline passes, especially given the uncertainty surrounding ARIN’s authority over legacy addresses. In fact, ARIN has extended the Legacy RSA deadline twice already and may choose to do so again rather than aggressively pursuing other avenues. ⁷Lindsay, supra note 3.

Legacy holders must weigh the pros and cons of signing the Legacy RSA. Among the pros, Legacy RSA adopters receive a number of protected rights, including the following:

• ARIN will not terminate a Legacy RSA for its convenience;

• ARIN will not reduce the services it provides to legacy address holders;

• ARIN will not revoke unused legacy addresses unless the legacy holder breaches the agreement; and

• Legacy holders may choose to adopt the terms of any later Legacy RSA at their discretion. ⁸Id.; Legacy Registration Services Agreement, https://www.arin.net/resources/legacy/ (last visited June 3, 2011).

Among the most notable cons of signing the Legacy RSA, legacy holders must waive all claims to ownership of the addresses and comply with all of ARIN’s policies, including its strict transfer policies, which are subject to change. ⁹Lindsay, supra note 3.

ARIN’s current transfer policy permits the assignment or transfer of IP addresses only with ARIN’s prior, express permission. ¹⁰Lindsay, supra note 3; ARIN Number Resource Policy Manual, https://www.arin.net/policy/nrpm.html#eight (last visited June 3, 2011). And in certain limited circumstances, unused addresses may be sold to third parties for compensation, but the address registrants must sign either a Legacy RSA or standard RSA. ¹¹Id.

Legacy owners thus must consider their options carefully and decide whether they believe they own property rights in legacy addresses and, if so, how they would like to protect or leverage those apparent assets.

Increasing Focus: IPv4 Depletion

In addition to the looming Legacy RSA deadline, another recent event will increase the focus on the IP address ownership issue—IPv4 depletion. The most commonly used IP address standard, IPv4, only provides for approximately 4 billion unique IP addresses—a modest amount given the widespread use of internet technology worldwide. Therein lies the problem. On Feb. 3, the Number Resource Organization officially announced that all available IPv4 addresses have been distributed and thus IPv4 has run dry. ¹²Peter Pachal, Internet Officially Runs Out of Addresses, PC Magazine (Feb. 3, 2011), http://www.pcmag.com/article2/0,2817,2379327,00.asp (last visited April 19, 2011).

Fortunately, the internet community anticipated this problem and began to move toward a new IP address standard with far more available addresses, IPv6. So if you’re worried that the depletion of IPv4 addresses signals some sort of internet Armageddon, fear not, because the IPv6 standard reportedly provides 340 trillion, trillion, trillion unique IP addresses, and the transition to IPv6 is already under way. ¹³Id. On June 8—“World IPv6 Day”—Google, Facebook, Yahoo!, and other major internet organizations tested their content over IPv6 for 24 hours. ¹⁴About World IPv6 Day, http://www.worldipv6day.org (last visited June 29, 2011). This high-profile test run was meant to motivate organizations to upgrade their services and systems from IPv4 to IPv6. The experiment was largely considered a success, but in rare cases, users experienced impaired access to the participating websites. ¹⁵Successful World IPv6 Day Demonstrates Global Readiness for IPv6, http://isoc.org/wp/newsletter/?p=3861 (last visited June 29, 2011).

The IPv4 and IPv6 systems are not automatically compatible, however, and costly infrastructure and systems upgrades may be necessary to allow for a smooth transition. ¹⁶Pachal, supra note 12. Indeed, only modern systems and hardware support IPv6 technology and many older network infrastructures will require add-on components or complete overhauls to achieve full compatibility. ¹⁷Ernesto M. Rubi, The Impending IPv4 Crisis: How U.S. Courts Are Likely to Approach the Question of Ownership Rights in IPv4 Numbers, at 5-6 (2010). Such significant effort and expense may be impractical or completely out of reach for some organizations, especially small enterprises and those located in countries where technology is typically behind-the-times or prohibitively expensive. To such smaller players, IPv4 remains the more attractive (or only) option, even in the face of IPv4 depletion. And given the current state of the global economy, the IPv6 transition could drag on for many years. In any event, even for the wealthiest and most sophisticated players, the IPv6 conversion takes time and IPv4 addresses will remain relevant and valuable for the foreseeable future. ¹⁸Samara Lynn, IP Addresses Are Running Out: What You Need to Know, PC Magazine (Jan. 28, 2011), http://www.pcmag.com/article2/0,2817,2376887,00.asp (last visited April 19, 2011).

Indeed, until the IPv6 transition is complete, the scarcity of IPv4 addresses will fuel the IPv4 transfer market. Individuals and businesses will enter the market to obtain IPv4 addresses, while IP address owners with unused blocks of addresses will seek to realize value from those assets. The ownership issue and ARIN’s authority, if any, to regulate the transfer and sale of legacy addresses will thus come under increased scrutiny as legacy owners scramble to design and implement IP address portfolio strategies.

The Nortel Case

Nortel Networks’ recent bankruptcy proceedings brought the IP address ownership issue to the courts. On April 26, the U.S. Bankruptcy Court for the District of Delaware approved Nortel’s sale of over 600,000 IPv4 addresses to Microsoft for $7.5 million. ¹⁹In re Nortel Networks Inc., No. 09-10138, Order (I) Authorizing and Approving the Sale of Internet Numbers Free and Clear of All Liens, Claims, Encumbrances and Interests; (II) Authorizing and Approving Entry Into a Purchase and Sale Agreement; (III) Authorizing the Filing of Certain Documents Under Seal and (IV) Granting Related Relief (Bankr. D. Del. April 26, 2011). The court only dealt with the ownership issue indirectly, however, by merely approving the sale—it did not issue an opinion regarding Nortel’s property rights in the addresses (or lack thereof).

Interestingly, ARIN intervened in the middle of the sale process and successfully obtained Microsoft’s signature on a Legacy RSA. ²⁰Milton Mueller, ARIN Stumbles Into the Nortel-Microsoft IP Address Deal, Internet Governance Project, http://blog.internetgovernance.org/blog/_archives/ 2011/4/15/4796200.html (last visited June 3, 2011). In addition, ARIN negotiated modified language in the parties’ proposed sale order, including language providing that the purchased addresses would be subject to the terms of the Legacy RSA (and thus ARIN’s authority). ²¹Id. The court did not articulate whether ARIN’s involvement or the Legacy RSA played a role in its decision to approve the sale.

Accordingly, the Nortel case did not provide legacy holders with judicial guidance on the ownership issue. But it did reveal ARIN’s apparent influence on even the biggest of industry players and provide insight into ARIN’s strategies for dealing with sales of addresses that originate outside of its transfer policies. Moreover, ARIN demonstrated its willingness to intervene and the effectiveness of its tactics. It is unclear, however, what ARIN would have ultimately been willing or able to do to stop the sale had Microsoft not cooperated and voluntarily signed the Legacy RSA.

Conclusion

Despite the increasing focus on IP address ownership rights, no clear legal framework exists. The Nortel court merely approved an ARIN-sanctioned transfer without taking a position on the underlying ownership issues. And it remains unclear whether ARIN will simply extend the Legacy RSA deadline again in December 2011, rather than taking a more aggressive stance. Yet IPv4 addresses remain more scarce and perhaps more valuable than ever, and an apparent market for their transfer persists and will likely flourish in the face of IPv4 depletion.

In the absence of clarifying litigation or legislation, IP address ownership will likely remain in a state of flux, fueled by uncertainty and booming transfer opportunities. ARIN could be forced to intervene in non-sanctioned transactions on a case-by-case basis, which may prove difficult given the expected increase in IPv4 transfers.

Accordingly, savvy practitioners would be well-served to monitor the ownership battle in anticipation of increased disputes and an increased need for related client-counseling. The next great IP tug-of-war is officially underway.