Online Gambling: A Lost Cause (8 of 8)

In first year civil procedure, we all learn problems courts may face finding jurisdiction over defendants. A challenge online gambling presents is the extent of power a court has over a website. Where is a website located for legal purposes when it’s used to gamble over the Internet? Is it where the bet/wager is placed or received? Should it be where the company is incorporated? How you answer these questions can place a website completely outside the reach of a U.S. court. In a previous blog on domain names, I explained how a website is an address to a physical computer somewhere in the world. Jurisdiction can become complicated when online gambling operators are actually licensed by another governing body.

Some countries around the world issue licenses for online gambling sites.[1]These jurisdictions charge a fee for a license and sometimes also charge tax on the earnings of the website. Some of the countries that issue these licenses include Australia, Antigua and Barbuda, Costa Rica, as well as the United Kingdom.[2] Although the regulations enacted in these jurisdictions differ in the level of regulation, it still allows the operators of these sites to display they have a license and draw customers to their sites. To an extent, licensing adds legitimacy and brings credibility, which raises revenue. It also makes customers feel more comfortable placing bets and moving money through these sites. Generally speaking, websites licensed in Europe are trust worthier than those licensed in the Caribbean because of stricter rules operators must adhere to.[3]

In the U.S. it is illegal for an operator of a gambling site to “knowingly accept [money], in connection with the participation of another person in unlawful Internet gambling…”[4]Although operating a gambling website in the U.S. would not be legal, what is the court’s power against companies operating these sites outside the U.S.? This was part of the conflict raised when the DoJ seized the domain names of various sites because it prevented companies from operating in countries where it is legal. Over the years, the UIGEA has not prevented Americans from using the Internet to access these sites and gamble; although after the domain name seizures it has become harder to do.

Where the operators of these sites claim to be varies. Some claim to be located where they are incorporated, some where the server hosting the website is, others where they are licensed, and some simply just in cyberspace.[5] Opponents of online gambling sites have successfully claimed jurisdiction by state and federal court where an interactive website is received by a user. This would mean any court could exercise jurisdiction over a website. One legal expert in the Las Vegas area said “”A recent case in the 11th Circuit Court of Appeals held that an Internet site should not be subject to place-based city zoning regulations, because it operates in “cyberspace” rather than in a specific location. Therefore, traditional prohibitions against general, location-based gambling may not apply in cyberspace. Moreover, the fact that a growing number of states felt the need to enact legislation specifically outlawing Internet gambling suggests that this argument may be persuasive.”[6]

Zippo Mfg. Co. V Zippo Dot Com, Inc., established a test to determine personal jurisdiction over an absent defendant:[7]

“[T]he likelihood that personal jurisdiction can be constitutionally exercised is directly proportionate to the nature and quality of commercial activity that an entity conducts over the Internet. . . .At one end of the spectrum are situations where a defendant clearly does business over the Internet.  If the defendant enters into contracts with residents of a foreign jurisdiction that involve the knowing and repeated transmission of computer files over the Internet, personal jurisdiction is proper. At the opposite end . . .is a defendant [who] has simply posted information on an Internet Web site which is accessible to [forum resident] users . . . . The middle ground is occupied by interactive Web sites where a user can exchange information with the host computer.”

Under this test, it may be easier to exercise personal jurisdiction over many of these gambling sites. It seems exercising personal jurisdiction over these sites also may not be contested by operators of sites the DoJ seized. To the online poker players it’s a shame to see gambling operators reaching settlements with the DoJ. The operators are getting away while they can at the expense of losing the online gambling community as it was prior to Black Friday. Whether or not the court should exercise power over these websites is a matter of opinion and outlook on the structure of the Internet. Should the U.S. be the ultimate arbiter in cases like domain name seizures?

I’ve attached the trailer to an online poker documentary for you to watch. It’s interesting to see the diversity of poker players who have come to play the game.

[2] Id.

[4] 31 U.S.C 5363


[6] Id.

[7] 952 F.Supp. 1119, 1124 (W.D. Pa. 1997)


~ by davidghassan on December 2, 2011.

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