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Saturday, December 13, 2008

Law - Still more on "Kentucky Tests State's Reach Against Online Gambling" [Updated]

Updating this ILB entry from Nov. 15th, there are several reports today.

Brandon Oriz of the Lexington Herald-Leader writes today in a fascinating story:

LOUISVILLE — Lawyers representing online gambling interests told the Kentucky Court of Appeals on Friday that Gov. Steve Beshear’s effort to seize domain names is blatantly unconstitutional.

A three-judge panel is weighing Beshear’s unprecedented move to seize the domain names of 141 gambling Web sites.

Franklin Circuit Judge Thomas Wingate allowed the Cabinet for Justice and Public Safety to seize the domain names last month. The seizure, at this point, is meaningless because the state cannot control the content of the Web sites until a judge orders the domain names forfeited to the state.

A forfeiture hearing has been stayed pending a ruling from the Court of Apeals.

In oral arguments Friday, lawyers representing six domain names, two online gambling trade groups and The Poker Players Alliance said the cabinet’s move is littered with legal and constitutional flaws.

They focused on four arguments:

■ Wingate does not have jurisdiction to allow the state to seize domains registered in other countries where gambling is legal.

■ Domain names are not gambling devices.

■ Domain names can only be seized after a criminal conviction. The state has not attempted to criminally prosecute the Web site operators.

■ Kentucky is prohibited by the commerce clause of the U.S Constitution from regulating interstate and international commerce, which the trade groups argue Wingate’s order affectively allows.

“We have Kentucky exercising worldwide jurisdiction,” said Frankfort lawyer William E. Johnson, who represents five domain names. Friend-of-the-court briefs supporting the online gambling interests were filed by the Electronic Frontier Foundation, Center for Democracy and Technology and the American Civil Liberties Union of Kentucky; Network Solutions LLC; and The Poker Players Alliance.

The owners of gambling sites did not appear in court Friday and have not directly participated in the lawsuit. Instead, proxy owners of six domain names and two trade groups have sought to represent their interests.

The cabinet has argued that the proxy owners and trade groups don’t have standing to challenge the seizure since they’re not revealing their client’s identities, and hence can’t prove they own the gambling sites. The cabinet’s lawyers called it a “heads-I-win, tails-you-can’t-find-me” legal strategy.

Trade groups and the ACLU of Kentucky retorted that government is attempting to coerce the gambling sites into self-incrimination — which is prohibited by the Fifth Amendment — or risk losing their domain names.

The domain name owners note that it was the state that chose to sue them rather than the gambling businesses that operate the Web sites, likely because they’re overseas and can’t be located.

A private lawyer representing the state, Erik Lycan, said the gambling sites are engaging “in a massive offshore criminal conspiracy” that’s masquerading “as a legitimate business.”

“They can’t bring that masquerade into Kentucky,” Lycan said.

More from the story:

Beshear campaigned last year on a promise to open casinos in Kentucky, but says some of the most popular gambling sites in the world are bad for the state.

The governor has said the sites create ways for children to gamble; undermine horse racing by creating untaxed competition; make it easier to launder money; and lack consumer protections to ensure people actually receive their winnings.

While Wingate’s ruling would allow the state to commandeer domain names, Internet users in Kentucky could still access the Web sites by typing their IP addresses — unique numbers assigned to every computer or Web server connected to the Internet —into their browsers, lawyers notes.

Louisville lawyer Jon L. Fleischaker, who represents the Interactive Media Entertainment and Gaming Association, a trade group, argued that domain names are no more than billboards. He noted that the Horseshoe Casino in Southern Indiana can advertise in Kentucky, even though gambling is illegal here, because of the First Amendment.

Seizing a domain name is no different than the state seizing a casino billboard, Fleischaker said.

“That is classic prior restraint,” he said.

The state wants gambling sites to block Kentucky Internet users from viewing the sites. But such technology is prohibitively expensive and faulty, gambling trade groups argued in briefs.

Furthermore, Kentucky is constitutionally prohibited from imposing such a requirement for Web sites located in other states and other countries, where the Web sites may be perfectly legal, the lawyers argued.

In briefs, the lawyers likened it to China attempting to seize a domain name registered in the United States because the Web site promotes religion.

“If we can do it to them, they can do it to us,” said lawyer John L. Tate, who represents vicsbingo.com and the Interactive Gaming Council, a trade group.

Another key issue is whether domain names are gambling devices.

Johnson said domain names do not meet the legal definition of a gambling device because domain names are not electronic devices that are manufactured. He noted that Kentucky’s gaming statutes were written in 1974, long before the Internet was commercially available.

Two of the three judges expressed skepticism about the government’s case.

Judge Jeff Taylor asked how the government could seize the domain names when the Web site operators have not been prosecuted.

Justice and Public Safety Cabinet Secretary J. Michael Brown “taught a law school class 27 years ago and he taught that there is a presumption of innocence until proven guilty,” Taylor said.

Here is a shorter story from the Louisville Courier Journal.

Here is a detailed press release about the oral argument, put out by he Interactive Media Entertainment & Gaming Association (iMEGA) is a not-for-profit corporation headquartered in Washington DC., the group challenging the forfeiture action of 141 Internet domain names sought by Kentucky Gov. Stephen Beshear.

[Updated 12/28/08] See this Dec. 22nd analysis by Anita Ramasastry on the trial court decision, headed "A Kentucky Court Approves the Seizure of Out-of-State Companies’ Domain Names: A Dangerous Precedent that May Chill Free Speech and Impede Global Internet Communications."

Posted by Marcia Oddi on December 13, 2008 10:22 AM
Posted to General Law Related