WASHINGTON POST LOOKS AT KENTUCKY ACTION (Update)

10 October 2008

Commonwealth of Kentucky is testing its reach

Washington Post staff writer Brian Krebs has published an insightful report on the attempt by the Commonwealth of Kentucky to seize international domain names belonging to overseas Internet gambling companies.

In his report, Krebs investigates some of the novel legal questions on the physical location of digital property and the reach of local and regional governments on the global Internet which were presented to a Kentucky judge earlier this week by a courtroom full of lawyers representing interested parties.

The Kentucky crisis was triggered when the judge granted a request by Governor Steve Beshear to have 141 Web site names used by online gaming operations transferred to the state's control. The fact that this was done without prior notification or endorsement by the Kentucky state legislature has attracted criticism.

According to the state, residents spend roughly $170 million each year gambling at online casinos, potentially taxable revenue that might otherwise have been spent at the state's own gaming operations, which include regulated betting on horse racing and bingo. As one lawyer pointed out, Kentucky has had opportunity to licence and regulate online gambling, which is not expressly illegal in the state.

However, attorneys for the state convinced Judge Thomas Wingate that the gambling website domain names were tangible "gambling devices" that could be seized under Kentucky's gaming statutes. Wingate's order sought to compel the domain registrars to transfer control over the domain names to the state.

Jennifer Brislin, a spokeswoman for the Kentucky justice department, told the Post that the state is seeking unspecified damages from the casinos, but that its primary goal is to force the websites to block Kentucky residents from visiting them. She claimed the majority of the registrars affected by the judge's order had "locked" the domains in question to prevent them from being transferred to another registrar pending the outcome of the case.

"We think it creates a tremendous disadvantage for our legitimate, licensed and taxed gaming interests, and there are some damages that are due to the commonwealth as a result," Brislin said. Kentucky has a thriving gambling industry, most notably in the horseracing business where both land and Internet wagering is regulated, taxed and encouraged.

Krebs reports that opponents of the judge's decision contend that Kentucky has no legal authority to seize the casino domain names, as neither the individuals who registered the websites nor the registrars themselves are physically located in the state.

Bret Fausett, a domain name expert and attorney with the Los Angeles law firm Adorno, Yoss, Alvarado & Smith, told the Post that Kentucky's gaming regulations were written long before the advent of the commercial Internet, and make no mention of virtual casinos.

"This is a little bit like if the Home Shopping TV network was accused of fraud, and Kentucky decided to seize the show's cameras and set even though HSN's real location is nowhere near the state," Fausett said.

At least two domains, luckypyramidcasino.com and highrollerslounge.com - both registered through Bellevue, Wash. based registrar eNom - have been handed over to the state government. Enom did not respond to requests from Krebs for comment.

Christine Jones, general counsel for GoDaddy.com, the registrar used by 20 of the 141 domains named in the judge's order, commented that the company tried to walk a line between complying with the judge's demand and defending the rights of their customers. She noted that the casino site owners had not been given an opportunity to present their side of the case at the hearing in which the judge initially ordered the transfer of the domains.

"We issued a registrar certificate to the state that says the court has jurisdiction over the issue, but it doesn't have control over the domains, other than the ability to exercise judgment so that when there is a final adjudication on the merits of the case or a settlement by the parties, we will honor that outcome," Jones said.

On Tuesday this week, dozens of trade groups, domain registrars and gambling advocates in the Franklin Circuit Court had an opportunity to tell Judge Wingate why the case should be dismissed outright.

One of those at the hearing was Michael Collins, executive director of the Internet Commerce Association, a trade group representing domain name investors and online advertisers. Collins said the entire prospect of using the Internet - not only for commerce but for free speech - is at risk if one government or state decides they can freely seize domain names.

"What's to keep Iran or China from doing the same thing? Yet, even China - which tries very hard to control the Internet its citizens use - hasn't tried to do what Kentucky is trying to do here," Collins said.

Collins said that while the judge appeared to listen attentively to statements from those defending the online casinos, attorneys for the state presented the registrar certificates from GoDaddy as evidence that the court does indeed have jurisdiction to seize the casino domains.

Judge Wingate is expected to decide within seven days whether to dismiss the case or allow it to proceed to a forfeiture hearing.

John Levine, author of "The Internet for Dummies" and co-founder of the Domain Assurance Council, a non-profit industry consortium, told Krebs that the case is likely either to be thrown out or reversed on appeal. "The state's legal arguments fail on so many levels that it's truly bizarre that the court didn't reject this case in the first place," Levine said.

He pointed out that a federal law passed in 2006 makes it illegal for U.S. financial institutions to process payments for online gambling sites. But the law did nothing to prohibit U.S. citizens from gambling at online casinos. Only one state - Washington - has passed a law that specifically bars residents from placing bets online.

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