Betting & Gaming Alert
April 2010
Authors:
Linda J. Shorey
linda.shorey@klgates.com
+1.717.231.4510
Anthony R. Holtzman
anthony.holtzman@klgates.com
+1.717.231.4570
K&L Gates includes lawyers practicing out
of 36 offices located in North America,
Europe, Asia and the Middle East, and
represents numerous GLOBAL 500,
FORTUNE 100, and FTSE 100
corporations, in addition to growth and
middle market companies, entrepreneurs,
capital market participants and public
sector entities. For more information,
visit www.klgates.com.
Lack of Standing Impedes Ruling on Merits
by Kentucky Supreme Court in the Internet
Gaming Domain Names Case
In what might be termed an unusual move, the Commonwealth of Kentucky, in
September 2008, brought suit to seize 141 domain names for Internet gaming
websites on grounds that the names were used to facilitate gambling activities that
violated Kentucky law. The Commonwealth argued the domain names were
“gambling devices” for purposes of KRS §528.010(4) and, therefore, were subject to
forfeiture under KRS §528.100, which provides that “[a]ny gambling device or
gambling record possessed or used in violation of this chapter is forfeited to the
state….” The trial court agreed with the Commonwealth and concluded that the
domain names were used to violate Kentucky’s anti-gambling statutes, ordered the
domain names to be seized, and instructed the registrars of the domain names to
transfer them to the Commonwealth.
This caused counsel for the domain names, and counsel representing trade
associations whose members allegedly included registrants of the names, to ask to
have the forfeitures enjoined on grounds, among others, that domain names are not
“devices” within the meaning of KRS §528.010(4). The Kentucky Court of Appeals
granted their request.
The Commonwealth appealed to the Kentucky Supreme Court. On March 18, 2010,
that court reversed the Court of Appeals, concluding that neither the domain names
nor trade associations had established standing to challenge the forfeiture. See
Commonwealth ex rel. Brown v. Interactive Media Entm’t and Gaming Ass’n, Inc.
(“iMEGA”), 2010 Ky. LEXIS 74 (Ky. March 18, 2010).
The appeal to the Kentucky Supreme Court garnered much attention from the
Internet gaming industry. In addition to the trade associations who were named as
parties to the appeal – the Interactive Media Entertainment & Gaming Association
(“iMEGA”) and the Interactive Gaming Council (“IGC”) – a variety of other entities
participated as amicus curiae, including the Poker Players Alliance and eBay. They
sought affirmance of the Court of Appeals’ decision on grounds, among others, that
(1) domain names are not “devices” under KRS §528.010(4), (2) the trial court
lacked subject matter jurisdiction to enter the seizure order, (3) the trial court did not
have in rem jurisdiction over the domain names, (4) the seizure order violated the
dormant commerce clause, and (5) Internet gambling does not violate Kentucky’s
anti-gambling statutes.
The Kentucky Supreme Court found this litany of arguments to be “compelling,” but
stressed that, “[a]lthough all such arguments may have merit, none can even be
considered unless presented by a party with standing.” iMEGA at *5-6.
Betting & Gaming Alert
It then explained why neither the domain names nor
trade associations had demonstrated their standing.
With respect to the domain names, the Supreme
Court said they lacked standing because, in in rem
litigation, the property that is the subject of the
litigation does not itself have an interest in the
litigation. The Court explained that “only those with
an interest in the property, such as current owners,
have an interest in the litigation.” Id. at *8.
Therefore, only they have standing to maintain the
action. Because the domain names were “not their
own owners or registrants, nor [did] they claim to
be,” they “lacked standing to pursue the writ.” Id. at
*11.
With respect to the trade associations, the Supreme
Court began by noting that “[a]n association can
have standing only if its members could have sued in
their own right.” iMEGA at *13. It then determined
the trade associations had failed this test because
they refused to disclose any of the domain name
registrants whom they purported to represent,
explaining: “While IGC claims to represent 61 of the
seized domains and iMEGA purports to represent
‘some’ more, this Court cannot simply take their
words for it. The associations bear the burden to
demonstrate that they satisfy the requirements of
standing, and to do so requires proving that their
members would have standing themselves.” Id. at
*13-14. The Court rejected the notion that the
associations had met their burden by simply
proffering that they represented domain name
registrants, generally. It reasoned that “not all
internet gaming registrants are affected by the
seizure; only the registrants of the 141 seized
domains. In cases where the harm is specific, the
proof of standing must be equally specific.” Id. at
*16. The trade associations, in other words, were
required to specifically identify the registrants of
seized domain names whom they represented, but
failed to do so.
Despite concluding that neither the domain names
nor trade associations had demonstrated their
standing, the Supreme Court expressly left open the
possibility that they could do so (and obtain relief on
the merits) in the future:
If a party that can properly establish standing
comes forward, the writ petition giving rise to
these proceedings could be re-filed with the
Court of Appeals. The Court of Appeals could
then properly proceed to the merits of the
issues raised, or upon a proper motion, this
Court could accept transfer of the case, as the
merits of the argument have already been
briefed and argued before this Court. Until
then, however, consideration of the merits of
this matter is improper for lack of standing.
iMEGA at *19.
Adhering to this roadmap, iMEGA, on March 23,
2010, filed a motion with the Court of Appeals in
which it disclosed the identity of one of the domain
name registrants it represents –Yatahay Limited –
whose domain name (truepoker.com) was allegedly
among the 141 seized by the Commonwealth. In
the motion, iMEGA averred: “Because iMEGA has
established associational standing in accordance
with the [Supreme] Court’s Opinion by naming a
member of its association that has alleged a concrete
injury in fact, this court should now resolve the
substantive and important issues this case presents.”
It then set forth arguments as to why the seizure was
unlawful and asked for an order requiring the trial
court to dismiss the case in its entirety. At the same
time, it moved for the Supreme Court to accept a
transfer of the case. On March 26, 2010, the Court
of Appeals entered an order recommending the
transfer.
It is not clear when or how these issues will
ultimately be resolved. What is clear is that the
Internet gaming industry will be watching (and
participating) with great interest and fervor. It is
also clear that the Kentucky case has raised the
question of whether other states (or the federal
government) will likewise attempt to seize domain
names that have allegedly been used in connection
with violations of anti-gambling laws. If they do,
there are a number of arguments that can be made to
contest the seizure. But, as the Kentucky case
teaches, those arguments will not have a chance at
winning the day unless they are asserted by a party
that establishes its standing. While registrants of
seized domain names might not wish to identify
themselves, they will likely need to do so in order to
establish their standing and reclaim their ability to
use the names. The issue of standing is an
important one for the Internet gaming industry as
long as government entities continue to look for
ways to disrupt the largely unregulated industry in
the U.S. through collateral attacks.
April 2010
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Betting & Gaming Alert
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April 2010
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