By Martin Owens
One Question Leads to Another
Kentucky's URL Seizure Action and State-Licensed Igaming.
"He who asks questions, can not avoid the answers."
Philadelphia, PA (Sports Network) - Kentucky's Supreme Court has been handed the problem of whether or not a state government can reach out and confiscate URL addresses from businesses which annoy that government, even when they have no other presence in that state than the Internet. On March 18th, the judges hit the re-set button, but only on part of the question. The lawyers heading the defense were told they had no standing. Maybe so, but in actuality neither did the plaintiffs. A pity the old Commonwealth's highest court didn't throw the whole thing out and tell everyone to start again.
URLs as gambling equipment?
The Bluegrass State, long known for fine horses and fast politics, discovered itself in financial difficulties in about 2007, and began investigating licensed casinos as a new revenue source. Governor Bashear came out in favor of no less than a dozen. This would have given Kentucky (population 4 million) a denser concentration of casinos than New Jersey, where Atlantic City's 11 casinos service cater to 9 million residents plus neighboring states (and some Jersey casinos have gone bankrupt anyway.). And it was a bold move where so many voters hold hardball fundamentalist views on social issues (apart from thoroughbred racing, of course).
Governor Bashear decided to mitigate any such backlash, and at the same time eliminate a presumed rival by attacking Internet poker. Of course, anyone who took the trouble to look would have soon found that Internet poker draws its customers from a completely different demographic group than horse betting. But nobody bothered to check, it appears, and in late September 2008 an application was made to a municipal court in Kentucky : please issue confiscation orders for 141 domain names of various gaming and gambling related web sites, on the grounds that these were "gambling equipment" and therefore subject to seizure under state laws.
But the request for a confiscation order did not come from Kentucky's Attorney General, the official charged with enforcing state laws. Instead it emanated from something called the Justice and Public Safety Cabinet, which oversees Kentucky's prisons, public defenders, and coroners. It has no functions that relate to telecommunications, the Internet, gambling, or criminal prosecution. Why it involved itself with online poker is anybody's guess: in fact they had to hire a private law firm to bring a civil action.
No Offense Committed?
Why wasn't the Bluegrass Attorney General leading the charge? Well, there is no official pronouncement on this, either, but it may well be that the AG demurred because there was, in fact, no violation of Kentucky State laws here. Kentucky Revised Statutes Section 528.010 defines gambling devices as those things which, "...when operated may deliver, as the result of the application of an element of chance, any money or property, or by the operation of which a person may become entitled to receive [them]." But a domain name does not "operate" at all. It is a URL, an address. It has no moving parts. It is not connected to the software that operates a gaming Web site. It does not take in any money, compare any results, or pay anybody. To order such a thing seized is the equivalent of arresting the house numbers of a building where gambling took place, or raiding the post office because some twelve-year-old got caught in the bathroom with a foldout of Miss July.
There is also the matter of jurisdiction, The powers that be would rather choke than admit it, but fifteen years into the problem there is a basic question still unanswered. If a resident of State X accesses an internet gambling site that has no other connection in X, is that an offense within State X? Does that create criminal, or even civil jurisdiction? The complaint is no help: it doesn't even discuss whether Kentucky gambling law was violated at all; that was simply assumed. Only eight U.S. states even mention the Internet in their gambling laws. Kentucky isn't one of them. Lastly, a good number of the URL's marked for seizure were not gambling businesses per se, but portals and advertisers.
But things didn't go according to the script. Rather than lay down and play scapegoat in Kentucky's morality play, the URL owners fought back to keep their property. In early October 2008, the mysterious Public Safety Cabinet announced that all Kentucky wanted was that gambling sites block Kentucky players (to this day, no one will even guess how many there are.) But that could have been done with a few letters or emails. Plainly, the Bluegrass powers-that-be were trying to put a good face on a failed hijacking.
In February 2009 the Kentucky Court of Appeals held that the URLs were not in fact gambling equipment. The decision was appealed. Now the Kentucky Supreme Court has in effect de-certified the defense, but given them leave to re-file. The call is not, in other words, who was right or wrong, but "improper procedure, take the down over".
What's the point of that? The finding of the lower court, that URLs aren't gambling equipment, has not been disturbed, and probably can't be. It's true that proper legal procedure needs to be observed. But it's also true that this is an election year, and that Kentucky judges are elected officials. One can't help suspecting that the procedurally correct ruling will also be the path of least political resistance. It ensures that the final decision in this case won't come until after the November election results are safely in the barn. If you ask a question and can't avoid the answer, at least manage the timing.
Will I-gaming be safe?
But the case does point to a recurring problem that will have to be dealt with if Internet gaming is ever to operate on a consistent, money-making basis in this country. Politicians who cater to the socially conservative voter have grown used to treating gambling, particularly Internet gambling, as an all purpose bogeyman. There is no right to gamble in American law, unfortunately. But all too often that has taken that to mean that the people who engage in gambling have no rights either. It is perfectly alright, in this mindset, for American lawmakers and law enforcement to swoop down on gambling the way the Comanches used to go after wagon trains. Gambling is not only against the law, it's a sin, too and so their prevailing philosophy is "anything goes".
Which is very much on the minds of the assorted gaming operators who are considering participating in American Internet gaming now that states like California, New Jersey and even little Iowa are pondering participation. It's true that America is the biggest single online gaming market in the world. But on the other hand, no one wants to be whipsawed between competing, contradictory state laws- to be invited in by one faction, only to be punished by another.
Someone from Stockholm or Manchester doesn't understand the difference between Kentucky gambling policy and Florida's- and doesn't think he should have to. And he definitely thinks he shouldn't have to risk jail time or confiscation of property, becoming a political pinata every time some good ol' boy or caped crusader gets the itch for an election year headline. But that's exactly the feeling they get when they see such off-the-wall moves as Kentucky's confiscation suit.
Internet gaming is coming to this country, in one of two ways: either the states will legalize it on a case by case basis, or there will be a national licensing scheme imposed from Washington. The states have the early lead- UIGEA already allows them to license I-gaming, and it ought to be easier and quicker to get organized at the statehouse level.
But that's the challenge- they have to get organized. That includes making it clear that licensing states expect that their licensees be treated as the law abiding businesses that they are (or will be). Let ambitious politicians get their headlines somewhere else.
And that's the last question: will the states get their houses in order in time to forestall Federal action?
Mr. Owens is a California attorney specializing in the law of Internet and interactive gaming since 1998. Co-author of INTERNET GAMING LAW with Professor Nelson Rose,( Mary Ann Liebert Publishers , 2nd ed 2009) ; Associate Editor , Gaming Law Review & Economics; Contributing Editor, TSN. Com
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