Kentucky loses domain name seizure case

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The online gambling industry scored a victory in its battle against Kentucky's attempt to seize 141 Internet domain names on Tuesday, when a three-judge panel of the Kentucky Court of Appeals ruled 2-1 that the seizure order issued by lower court judge Thomas D. Wingate against the gambling sites' domain names should be set aside.

The Interactive Media Entertainment and Gaming Association (iMEGA) had brought the appeal on a number of grounds, including that domain names were not gambling devices under the applicable Kentucky seizure law and further that the seizure law was a criminal statute, not civil, and that the Commonwealth exceeded its authority in bringing the action against the domain names.

The parties had submitted their written arguments, including amicus briefs by the Interactive Gaming Council, the ACLU of Kentucky and others, late last year, and oral argument was held in December.

At the time, attorneys were cautiously optimistic about the court's ruling, noting that many of their arguments seemed to carry some weight. With today's ruling, cautious optimism has turned into vindication.

"We are very happy with the court's ruling today," said Joe Brennan Jr., chairman of iMEGA, in a written statement. "The judges clearly agreed with our interpretation of the law, and thankfully, this reverses what would have been a terrible precedent for our country and the Internet."

Writing for the majority opinion, Judge Michelle M. Keller agreed with iMEGA and its coappellants that the Internet domain names were not illegal "gambling devices" under Kentucky law, as had been claimed by attorneys representing the Commonwealth.

"[I]t stretches credulity to conclude that a series of numbers, or Internet address, can be said to constitute a 'machine or any mechanical or other device ... designed and manufactured primarily for use in connection with gambling,'" Keller wrote.

"We are thus convinced that the trial court clearly erred in concluding that the domain names can be construed to be gambling devices."

Keller noted that the Kentucky legislature could have amended the statute to include Internet domain names within the definition of gambling devices if it wanted that seizure to apply to those as well, but it did not.

Accordingly, the appellate court could not ignore the clear language of the statute, and the writ prohibiting enforcement of the seizure order was granted.

Although the majority opinion did not address any of the other issues on appeal, in a concurring opinion Judge Jeff S. Taylor added that the Commonwealth could not seek a civil forfeiture based on a criminal statute when there had been no criminal proceeding. Since there had been no criminal proceeding or conviction against any of the Internet domain name owners, the Commonwealth could not take any action against their property.

John Pappas, Poker Players Alliance executive director, expressed his organization's happiness with that ruling.

"This is a tremendous victory for Internet freedom and the rights of Kentucky residents who enjoy playing online poker," Pappas said. "We are pleased that the appeals court has forcefully reversed Judge Wingate's earlier ruling and confirmed many of the arguments that have been raised in opposition to the seizure effort.

"The Court of Appeals has agreed with the PPA's position that Judge Wingate did not have jurisdiction to issue the order that he entered against these domains and that Secretary Brown has no legitimate right to deprive the citizens of Kentucky of the legal right to play poker online."

The lone dissenting judge, Michael Caperton, disagreed with the majority and believed that the Internet domain names were one part of a larger mechanism for gambling, which included computers and Internet service, and thus, in his opinion, met the definition of a "gambling device" under Kentucky law. He did not address Taylor's argument that the Kentucky seizure order was an improper use of a criminal statute.

In its press release following receipt of the court ruling, iMEGA offered this quote from its lead attorney.  "This decision confirms why we went the way we did with suit," said Jon L. Fleischaker, managing partner at Dinsmore & Shohl in Louisville.

"We knew when we brought this to the Court of Appeals, that we would get justice for iMEGA and the domain names in Kentucky."

By basing its ruling on the narrow issue of whether a domain name is a gambling device, the court of appeal left unanswered some of the other arguments on appeal. The issue of free speech, whether poker is a game of skill and, significantly, whether a state can exercise dominion over Internet sites located outside its borders, were all left for future litigation attempts.

For now, the 141 domain names seized by Kentucky through the efforts of Gov. Steve Beshear will not be forfeited.

"On behalf of the thousands of PPA members who live in Kentucky, we hope that Governor Beshear and Secretary Brown will abandon this misguided effort and focus new energies into regulation and taxation of Internet poker," said Rich Muny, Kentucky state director for the PPA, who resides in Union.

"This common-sense approach would benefit Kentucky's poker enthusiasts and the revenue will benefit the state as a whole. Rather than spending hard to find dollars on this case, the governor could actually turn this into a much needed new revenue stream for the Commonwealth."

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