Gambling and the Law®: Is an Internet Poker Website a Slot Machine?

Six years after the governor of Kentucky used an ancient anti-slot machine law to seize online gaming domain names, the owners of those names won a court victory: The Kentucky Court of Appeals ruled that the Interactive Gaming Council could represent the operators.

After more than half a decade, we now have a ruling on who the parties to the lawsuit will be.

Of course, the governor is considering an appeal. And whether or not the Supreme Court of Kentucky upholds this ruling, we are still a long way from deciding the merits of the case: Are domain names of online gaming companies “gambling devices?”

Is it any wonder that lawyers and courts are often seen as barriers to justice?

The issue was important to the parties. The Court of Appeals rightly noted that, “The alternative—forcing all 141 domain name owners to pursue their claims individually—would be burdensome and inefficient.” Basic fairness also applies, since the Commonwealth of Kentucky is itself treating the gaming operators as a group.

Of course, the real reason the operators of these overseas gambling sites do not want to show up in a court in Kentucky is that they might get arrested.

Eventually, we will get a ruling on what is really going on with this case, as with so many others: Can courts bring 19th century state anti-gambling laws into line with 21st century thinking?

Changes in the law trail changes in society. The law is normally reactive, not proactive: Legislators don’t normally sit around debating solutions to problems that have not yet happened. Lawmakers did not debate Internet gambling before it was invented. In fact, most have not given it much thought even now, 20 years after Americans first became able to make bets online.

Courts do not even have the freedom that legislators have to look at issues affecting society as a whole. Judges may talk about public policy and the impact of their decisions on the rest of society. But cases are fought between opposing parties who seek to have their smaller, more limited disputes resolved by neutral decision-makers.

Federal courts are actually forbidden under the U.S. Constitution from making advisory opinions. Many state constitutions have similar limits. If there is not an actual “case or controversy” presently existing between parties that have actual interests at stake, the court is required to dismiss the lawsuit.

The laws surrounding gambling are especially slow to change. When Victorian morality swept the country more than a century ago, states put prohibitions on gambling into both statutes and constitutions, and constitutions are designed to be difficult to amend. The prohibitions were broad enough that prosecutors usually could find some criminal statute to use to go after an illegal gaming operation.

But society’s views of gaming have changed. In 1961, when the federal Wire Act was passed, the only state with casinos was Nevada, and the only state with a state lottery was… well, there weren’t any.

And then there is technology. The Wire Act was designed to cut “The Wire,” that is, the telegraph wire that illegal bookmakers used to get horse racing results before their patrons. Even that legal weapon has now been taken away from prosecutors. The highest levels of the federal Department of Justice have overruled and reversed the decades-old position of the Justice Department’s Criminal Division, expressly holding that the Wire Act is, in fact, limited to wagers on sports events.

Modern federal prosecutors have to be forgiven for being so grouchy. Imagine trying to close Internet poker rooms, and finding your major weapon is a statute a half-century old, designed to go after telegraphs. And you can’t even use that any more if the game is Internet poker.

State officials usually have the same problem—no modern statute that clearly reaches the Internet—along with the additional difficulty that state laws normally do not reach beyond their borders.

Which is why the governor of Kentucky decided to use a law designed to destroy as contraband illegal slot machines when he asked a court to seize 141 gaming website names. The Kentucky Legislature has not enacted any specific statutes aimed at online gaming. So, Gov. Steve Beshear (D) had few legal weapons at his disposal.

In September 2008, the governor succeeded in convincing Judge Wingate that the domain names were “gambling devices” under the statute. The case drew international attention when this Franklin County Circuit Court decided that it had the power to reach into countries on the other side of the globe, because the web name was “property” that somehow could be found in Kentucky.

I predicted that the trial court would be reversed, in part because this was such a dangerous precedent. If a county judge here could seize foreign domain names, what would prevent an Islamic court in Iran from deciding that every American website that dealt with alcohol or Christianity was immoral and therefore illegal? But I felt the Kentucky appellate courts would avoid the difficult issues involving the Internet and take the easy way out: A web name is simply not a slot machine.

On January 22, 2009, the Kentucky Court of Appeals agreed with me, in a 2-1 decision:
“It 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,’” Judge Michelle Keller wrote in the majority opinion.

But, as so often happens, the decision was reversed on appeal, on what most people would call a technicality. The Kentucky Supreme Court ruled that the parties who had brought the suit lacked the standing to sue. The court held that the domain names themselves were merely the property being seized and could not sue on their own behalf. Ships and sometimes other property that has been seized can sometimes sue; that is why you have interesting case names like U.S. v. $3,799.00 in U.S. Currency. But here the court held the site owners had to show up in court. It remanded for reconsideration whether the association, the IGC, could be their representative. Which, after more court hearings at all levels, resulted in the latest, small victory.

The case is far from over. Whichever side loses will eventually take the appeal, again, to the Kentucky Supreme Court. The first high court ruling was certainly not friendly toward online gaming operators. But I think the commonwealth’s highest court is not going to allow a statute clearly designed for physical items such as slot machines to be stretched to cover intangible concepts such as Internet addresses.

Judges are people. They are concerned with their reputations.

Internet gambling may be, legally, many things. It is already a stretch to call something like online blackjack a casino banked table game, since there is no actual table or casino. Can courts go further and declare Internet poker a form of lottery? Computers are sending numbers back and forth, even though players care about what cards they get, not the ones and zeros used to make the pictures appear. It feels as wrong as calling it bookmaking, under the theory that players are calling the site operators computers to make wagers.

So far, no published opinion has declared Internet poker, let alone the name of the site hosting the game, to be a slot machine. And no county judge has been allowed to seize web names from around the world. Do the justices of the Kentucky Supreme Court really want to go down that road?

If the good people of Kentucky do want to outlaw Internet gambling, perhaps it is time for the Legislature to bring the state’s laws into the 21st century, or at least the 20th.