One of the more unexpected developments during the 2008 calendar year occurred in Kentucky. Known as the “Bluegrass State,” Kentucky has become the epicenter of a volatile legal case that concerns the seizure and potential forfeiture of 141 internet gambling domain names by its Governor, Steve Beshear. The case has attracted the attention of major industry organizations, mainstream news sites, and even the American Civil Liberties Union, which is more commonly known as the ACLU. The case has the potential to set a major precedent one way or another, as the domains would be inaccessible not only in Kentucky, but all over the world. Let’s take a look at the basics.

In September, word broke that Governor Steve Beshear had ordered the Justice and Public Safety Cabinet to seize 141 domain names belonging to internet gambling companies that solicited customers from the Commonwealth. Among them were the URLs of PokerStars, Full Tilt Poker, Absolute Poker, Ultimate Bet, PlayersOnly, Cake Poker, and Doyle’s Room. An official hearing on the case was held on Friday, September 26th in a court room in Frankfort, which is the state’s capital city. Among those in attendance were lawyers from the Interactive Media Entertainment and Gaming Association(iMEGA) and Interactive Gaming Council (IGC).

On Wednesday, October 15th, the verdict of Judge Thomas Wingate was scheduled to be released. However, the Circuit Court Judge’s staff cited “computer problems” and the ruling actually came out the following day. It was anything but beneficial to the internet gambling industry, as Judge Wingate upheld the State’s actions and scheduled a final forfeiture hearing for November 17th, which was later pushed back until December. He ordered that sites in jeopardy could be spared if they blocked Kentucky customers. Cake Poker, Absolute Poker, Ultimate Bet, and sites on the Merge Gaming Network did just that. Microgaming originally blocked access by Kentucky residents, but later retreated from the U.S. market altogether.

Lawyers in the case argued that allowing Kentucky to seize domain names opened the door for any state, city, county, country, or municipality to follow suit. In essence, a dangerous precedent could be set. However, Judge Wingate was not swayed. In his ruling, he commented, “This doomsday argument does not ruffle the Court. The internet, with all its benefits and advantages to modern day commerce and life, is still not above the law. The challenge here is to reign in illegal activity and abuse of the internet within the framework of our nation’s and Commonwealth’s existing common law norms and principles.”

With regards to poker, specifically, Wingate argued, “Chance, though not the only element of a game of poker, is the element which defines its essence. In the end, no matter how skillful or cunning the player, who wins and who loses is determined by the hands the players hold.” That statement prompted uproar from industry groups such as the Poker Players Alliance (PPA), which holds that poker is a game of skill under Kentucky law and therefore legal. Those familiar with the game could also cite bluffing as an instance when a player with the worst hand wins a pot. The PPA has submitted an amicus brief in the case, joining Network Solutions, the Electronic Frontier Foundation, ACLU, and the Center for Democracy and Technology as organizations to do so.

In November, after iMEGA and IGC filed petitions for the Kentucky Court of Appeals to intervene, the case was stayed. On Friday, December 12th, the parties gathered in a court room in Louisville, the Commonwealth’s largest city. The three judge Court of Appeals panel featuring Michael Caperton, Michelle Keller, and Jeff Taylor heard arguments over the course of an hour and are currently deliberating. When they will return a verdict is anyone’s guess. In the meantime, the final forfeiture hearing is postponed indefinitely.

Central issues in the Kentucky case include the following contentious points:

1. Did the State have jurisdictionto seize the domain names in the first place? Neither the companies themselves nor the domain names appear to be located in Kentucky. Therefore, did the State have the authority to act? Who can seize domain names and who has control over the Wild West of the internet?

2. Did the State violate the Commerce Clause of the United States Constitution, which holds that Congress is charged with matters of commerce between states and with foreign nations? In this case, Kentucky may be regulating commerce on its own.

3. The Kentucky Lottery operates a second chance drawing online. In addition, TwinSpires.com, which offers online wagering on horse racing, is owned by Kentucky-based Churchill Downs Incorporated. Why should these be allowed to conduct business in Kentucky, but not the 141 companies in question? Is the State simply trying to protect its own economic interests?

4. Is calling domain names “gambling devices” justifiable? The term, which was used to seize the domains, is traditionally applied to items you’d find in an underground casino such as slot machines and roulette wheels. Can this term be used to reference domain names?

5. The case by the State is in civil court. However, seizure and forfeiture are in the penal code in Kentucky, which requires a criminal hearing. One central issue concerns whether the State is pursuing the proper protocol.

As more news breaks in Kentucky, we’ll bring it to you on PocketFives.com.

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