Kentucky, which has outlawed online gambling, was able to persuade a state judge last year that the domain names were illegal gambling devices under state law, and the judge issued the forfeiture order to registrars — not owners — of the domain names.
But an appeals court last month disagreed, 2-1, and the state government late last month filed its notice of appeal with the Kentucky Supreme Court.
“There’s certainly a possibility that the adult entertainment business could find themselves in the same spot as the online gambling industry,” John Krieger, a partner in the Las Vegas office of Phoenix-based Lewis and Roca, told XBIZ.
“I think it would make the lay of the land very uncertain for Internet businesses if Kentucky were to be allowed to seize domain names,” said Krieger, who is counsel to the Poker Players Alliance, which filed an amicus brief opposing Kentucky.
Krieger and other opponents argue that if Kentucky were to succeed in its last appeal, state officials on a website-by-website basis could make moral or other determinations as to whether they believe their residents should have access.
“For anyone who does business on the Internet, this could open up a Pandora’s box,” said Krieger, who noted that the Kentucky litigation is the first of its kind.
“It would make it much more uncertain for Internet businesses as to what conduct they could engage in and what jurisdiction and laws they would be subject to,” he said.
While the Kentucky appeal raises constitutional and other legal questions, the heart of the case for Internet business owners is the jurisdictional issue. It raises the question whether a state court has the authority or power to seize domain names when none of the domain owners is present in the state and all of the names are registered outside of the state.
Kentucky sought a civil forfeiture pursuant to a criminal statute — domain names are illegal gambling devices — when there had been no conviction.
The case also asks whether domain names are “property,” just links to or advertise other offshore gambling sites.
Krieger said the forfeiture orders were not sent to the domain owner-operators but to the domain name registrars.
He also said that Kentucky’s use of the forfeiture process was an attempt to get the domain name owners to appear at the forfeiture hearing.
“There were marshals at the hearing," he said. "And I have no doubt if they had shown up, they would have been arrested."
Network Solutions, which registered 20 of the 141 companies at issue, argued in an amicus brief that domain names were neither property nor gambling devices. The majority of courts that considered the question have found they are not property and domain names are essentially addresses and entail only contract, not property, rights, its amicus brief said.
Kentucky’s move to get a court order demanding forfeiture of the domain names mobilized strong reaction from associations and trade groups that represent the registrars of those domain names as well as from civil liberties groups such as the Center for Democracy and Technology, the Electronic Frontier Foundation and the American Civil Liberties Union.