Feds indict online gambling sites

April 15, 2011

By J. DeVoy

Fresh on the heels of D.C.’ s decision to pursue legal online gambling, the DOJ indicted a number of gambling websites today, including PokerStars, Full Tilt Poker and Absolute Poker. (source.)

The L.A. Times observes that this happened only after the online gambling business had taken off and become an economic success. (source.)  Much like the government’s efforts to stop private groups from making a profit through IP infringement – and keep the damages for themselves, depriving IP holders of a chance to recoup their losses – which have been widely discussed, this looks like another case of the government getting involved to push out competition for their own endeavors.  If the state is going to be administering, sanctioning and aggressively taxing gambling, the last thing it wants is competition.


Online Gambling Comes to DC

April 13, 2011

By Marc J. Randazza

Washington, D.C. – not Las Vegas, Miami or Texas – is poised to be the first to allow online gaming for its residents. But it’s not without some catches.

Players must be within the city’s small borders in order to play online. Despite the gaming occurring online, the technology – possibly through IP screening – will prevent interlopers from other states where online gaming is illegal from joining in. Further restricting access, prospective players will have to go to designated “hot spots” to be dealt in. These locations will be set up by the city, and will be set up in bars, stores and other locations.

Finally, players must register for the service. This will include an age verification, much as how Vegas casinos require gamblers to play.

Intralot, a tech company, will be the District of Columbia’s point company on the project. As of now, there are no outside contractors participating on the project. The move, intended to compete with the limited gaming facilities available in nearby West Virginia, Delaware and Maryland, is intended to keep D.C. denizens from going elsewhere for their gambling needs – allowing the city to tax more revenue. Given the premium real estate goes for in D.C., the online route seems like the most prudent plan to bring gambling to the area.

At first blush, the new law seems similar to Nevada bill AB268, which seeks to bring online gaming to Nevada, and its related bills, SB103 and SB218. It remains to be seen how the new D.C. law and other pending bills will square up against Federal statutes, particularly the Unlawful Internet Gambling Enforcement Act, 31 U.S.C. §§ 5361-67.


Washington State comes down against online gambling

September 2, 2010

By J. DeVoy

Today, in a unanimous decision authored by Justice Tom Chambers, the Washington Supreme Court dealt a blow to online gambling.   Internet Community & Entertainment Corporation, doing business as Betcha.com (“Betcha”), has been under the scrutiny of the  Washington State Gambling Commission since shortly after its 2007 launch.  Now, the Supreme Court has ruled that Betcha’s services constitute bookmaking under RCW § 9.46.0213, and thus the site’s operations constitute “professional gambling” as defined by RCW § 9.46.0269(1).  The full opinion, Internet Community & Entertainment Corporation v. Washington State Gambling Commission, No. 82845-8, is available here.

This entire dispute centers around a unique characteristic of Betcha’s business model — losers are not required to pay their bets.  When signing up for an account at Betcha, subscribers were required to provide credit card information to provide sufficient funds to cover an offered bet.  For a fee, Betcha would post the bettor’s offer to its site.  If an offeror lost a bet, however, he or she had 72 hours to refuse to pay.  If the loser did not refuse to pay within that time, the money in his or her account would be transferred to the winner.  In order to keep serial losers from defaulting on bets, Betcha had an honor ranking, similar to eBay’s user feedback, which assessed how trustworthy other bettors were in paying for the bets they’ve made.  This honor ranking was determined based on the bettor’s repayment frequency, amount wagered, and number of bets made.

At the trial level, Betcha sought declaratory relief in the form of a court order finding that its site did not violate state gambling laws, as well as an injunction against the state’s prosecution of the site.  On cross motions for summary judgment, the trial court found that Betcha was engaged in gambling and bookmaking, that its activities constituted illegal “professional gambling,” it transmitted and received “gambling information,” and the site used “gambling records,” all of which are illegal.  The Court of Appeals, in a split decision, reversed the trial court.  By the Appeals Court’s logic, Betcha’s users had not gambled because they did not have an understanding that they would receive something of value for winning, as loser’s could back out of payment.  This created ambiguity as to whether Betcha was truly accepting bets as part of its business, and the Court of Appeals resolved this uncertainty in Betcha’s favor.

Today’s Supreme Court decision reverses that thinking in a few important regards.

First, Because Betcha was receiving fees for posting the bets – whether they were gambling wagers or not – the Supreme Court found that this constituted bookmaking under the RCW.  RCW § 9.46.0213 considers only the “opportunity to make a bet,” rather than whether the bet was paid or even a gambling bet upon which the loser is financially liable.  Even though bettors could back out of payment, Betcha still facilitated the making of bets on its website, and accepted fees for doing so.

Because this behavior constituted bookmaking, the court found that Betcha.com was engaged in “professional gambling” under RCW § 9.46.0269, and it did not have to reach the question of whether Betcha’s conduct was “gambling” under a broader definition.  Since Betcha’s actions were considered professional gambling, it was further held to have engaged in the transmission of gambling information, defined as “any wager made in the course of and any information intended to be used for professional gambling.” RCW § 9.46.0245.  Similarly, the Supreme Court concurred with the trial court’s finding that Betcha was in violation of the law for possessing gambling records in its business, which are defined as “any record, receipt, ticket, certificate, token, slip or notation given, made, used or intended to be used in connection with professional gambling.” RCW § 9.46.0253.

This first raises a surprisingly profound question: When is a bet a bet?  In Washington, apparently any wager is, which is a dangerous precedent that may be used by zealous District Attorneys to criminalize poker nights in smokey basements, or a justification for more insidious rights violations, such as home searches premised on ill-defined betting.  Depending on how liberally fees for the opportunity to place a bet are defined, you may want to tell your friends to leave the beer and pretzels at home the next time they come over for a game of cards.

Second, this throws online gambling back a step.  Betcha’s premise of not being required to pay for losing a bet – but possibly being shamed off the site for backing out of too many of them – was supposed to circumnavigate exactly these types of challenges.  Generally, money must be at stake for gambling to occur.  But now, as seen in Washington, the ambit of anti-gambling laws goes farther than the guaranteed transfer of money from one consenting party to another in a game of chance, but extends to all wagers, whatever the consideration.  Betcha’s situation is somewhat unique in that it required a fee for the bet to be placed, which is how it presumably covered its operating costs.  Still, criminalizing a fee needed to facilitate the non-monetary wagers of willing parties seems silly, and beyond the ambit of what gambling laws are supposed to be.

Coming back core principles of free expression and economic liberty, this is a violation of both in a way Betcha specifically tried to avoid.  While not all of its bets were gambling wagers that required a loser to pay, Betcha provided a service that allowed individuals to pass the time and perhaps expand one another’s knowledge with information germane to the wager’s subject, whether it was a political race, the next day’s weather, or some broader event.  Second, this is an interference with Betcha’s founders’ ability to earn a living through electronic commerce and to express themselves in a way that doesn’t resemble traditional gambling.  This raises serious concerns for membership organizations, message boards or other pay services where wagers are made even without the owners’ encouragement, as they too may be culpable for professional gambling.

This case was ultimately one of statutory interpretation, rather than a clash of morality.  Such a ruling is heartening to the moral warriors who seek to limit arbitrarily defined vices while ignoring their own glaring shortcomings, and may be promoted in other states as a means to stop or slow the spread of gaming.  For that reason, especially close attention should be paid to any revisions to state gaming laws or cases on the topic in the foreseeable future.


Censorship in the Name of Political Correctness — Gamers Prepare to Face a New Enemy

March 30, 2009

Editorial and Comment by Zac “AGhostInTheSnow” Papantoniou

“Just when the decency police and moral values group have been all but defeated in the courts–both of law and public opinion–a new threat has emerged from our left flank: political correctness . . . The leftist thought police are now wanting to impose their view of propriety on modern cultural discourse.” – Lawrence Walters

If you love video games as much as I do, you should ingrain the name Lawrence Walters into your brain.

Walters, who has been described by some as “the Anti-Jack Thompson,” is a distinguished First-Amendment attorney and Managing Partner at the law firm of, “Weston, Garrou, Walters and Mooney”; he recently spoke at the “2009 Game Developers Conference” in a session titled, “Silencing the Censors.” (Disclaimer, Walters is Randazza’s law partner).

During the session, Walters forewarned game developers of a looming threat to the video-game industry, censorship in the name of “political correctness.” Walters cited pending legislation, in the state of New York, that aims to prohibit sales of games to minors, that have various degrees of profanity, racist stereotypes, derogatory language, and/or actions toward a specific group of persons.

The law would require New York retailers to apply warning labels to any game that contained such subject matter and would require retailers to keep all such games in a “sealed and locked container” inaccessible to customers. Non-compliant retailers – or “non-custodial” adults who purchase regulated games for minors – would be subject to a fine of up to $1,000.

I have some major points of contention with legislation such as this. First, the video-game industry voluntarily set up a self-regulating body (the ESRB), over 15 years ago, to independently rate and label the content of every game sold in North America. Attempting to enact such legislation is a waste of precious tax-payer dollars; dollars, that could be better spent on a multitude of various state needs, such as . . . oh, I don’t know, maybe . . . education?! Second, legislation based on political correctness, which would impose a $1,000 fine on an offender is both excessive and (should be) a shock to one’s conscience; especially considering the way such legislation binds the hands of parents when it comes to child-rearing. Last, but certainly not least, such legislation is an affront to one’s rational ability to use common sense, not to mention, the basic freedoms afforded by the First Amendment of the Constitution! As Walters pointed out in his session:

“Think about that for a minute. Would we ever in a million years tolerate the government passing a law that movies cannot have profanity, racial jokes, or derogatory language? That would eliminate practically every movie made,” he said.

“Now we can debate all day long whether racist stereotypes or derogatory language is even appropriate in video games, but that’s for us to debate, and not for the government to decide.”

This type of “thought policing,” as of late, has generally come from those leaning to the right of the political spectrum; but Walters warns that with the new change in the political landscape, it is ever increasingly coming from those on the left as well. We’ve seen this before, I mean, who grew up in the 80’s and doesn’t remember Tipper Gore’s “War on the Music Industry?”

This type of thinking will do us in people! Parents must be free to make decisions as to their children’s best interests; video-game developers must be free to create products and retailers must be free to sell those products as they see fit, without having to worry that they’ll be fined a grand if a minor gets their hands on a video game with mature content in it. You and I, must be free to express thoughts, ideas, expressions and creations, without having to constantly look over our shoulders, wondering if we’ll be the target of a politician’s next attempt to stifle something they find “controversial.” Because it starts here, with you and I; and if we don’t speak up for ourselves, we’ll have to then wonder, will there be anyone left to speak up for us, once the thought police come to stifle our fundamental freedoms?

I’ll leave you with something Ben Franklin once said:

“Those who would give up Essential Liberty to purchase a little Temporary Safety, deserve neither Liberty nor Safety.”

HT to First Amendment Bad-Ass, Lawrence G. Walters, for speaking up, and fighting for our right to play any fucking video game we choose . . . Read more: Here and Here.


You Betcha! “Gambling” Site Wins in Washington Court of Appeals

February 10, 2009

betcha-venn-diagramBetcha.com is an “honor system” gambling website. It functions as a social networking platform where gamblers make private bets with one another. Betcha collects a small fee from its members in exchange for the privilege of making bets with other users, but the website is 100% agnostic with respect to disputes between the parties — with one exception: Betcha allows users to leave feedback for other users.

Betcha.com is a person-to-person betting platform. We connect people who like to bet. . . . For legal reasons, betting on Betcha is done on the honor system — bettors who pay build their reputations (called “Honor Ratings”), bettors who don’t may find it tough to get action in the future.

After agents from the Washington State Gambling Commission visited Betcha.com’s offices, they told the operators of the site that it was engaged in “illegal professional gambling.” The agents told them to cease all operations, return all fees that Betcha.com had collected from its customers, and to get a lawyer. (Op. at 5).

Betcha filed a declaratory action seeking a ruling on the legality of its service. The trial court sided with the state, but the Washington Court of Appeals sided with Betcha.

The key issue was Betcha’s terms of service.

1. ACCEPTANCE OF TERMS
Welcome to Betcha.com (“Betcha”), the world’s first honor-based betting exchange. Betcha provides its service to you, subject to the following Terms of Service (“TOS”) . . . .

2. DESCRIPTION OF SERVICE

Betcha provides users with a global platform to list and accept bets (the “Service”). Bets made on Betcha are made on the honor system — that is, bettors are not obliged to pay when they lose. We hope they will, of course, not because they have to, but because they should. In any case, bets made on Betcha carry no
term, express or implied, that winning bettors will be paid when they win.

The way it works is as follows:

To place a bet on Betcha.com’s website, a user had tofirst register, create a username, provide a mailing address, and fund an account with a credit card payment over the Internet. Upon registration, he receivedan honor rating of 250, which couldthen go up or down based on his payment record and feedback from other bettors with whom he had bet. He could then bet with other users, individually or in pools, by drafting a bet or using pull down menus provided on the website to assist in formulating the proposition, or he could select from lists of predrafted wagers on a variety of topics. He could also set parameters such as how long the bet wasto remain open, and the minimum “Honor Rating[]”that the accepting bettor must possess. (Op. at 4)

When a bet is made, Bectcha gets a small fee for its trouble and then deducts the amount equal to the bet from both parties’ accounts and holds it in escrow. After the event upon which the two parties had laid a wager concludes, the parties log in and report on the outcome. If the winner reports that they won and the other party doesn’t report anything, the winner’s report is deemed conclusive, and the winner gets the escrowed funds.

However, here is where it gets legally interesting.

Betcha “holds the purse” for active bets by acting as an escrow agent for the bettors wagered amounts, losing bettors are allowed to simply “not pay.” See Op. at 3. The losing party can log in and report “I’m gonna welch.” If the party welches, the the opposing bettor can report negatively upon the experience, thus hurting the other party’s reputation ranking and making it less likely that anyone else will bet with them — however, the bets were, by design, non-binding and thus not “gambling.”

The Washington Court of Appeals agreed that this arrangement made it clear that there “can be no understanding that a bettor will receive something of value where the website stresses that all bets are non-binding.”

The salient point here is that as a prerequisite to registration and use of Betcha.com’s website, users must acknowledge and agree that all bets made on the website are non-binding. Accordingly, bettors cannot have an understanding that they will receive something of value if they win. (Op. at 11)

Washington Law defines “[g]ambling”as “staking or risking something of value upon the outcome of a contest of chance or a future contingent event not under the person’s control or influence, upon an agreement or understanding that the person or someone else will receive something of value in the event of a certain outcome.” RCW 9.46.0237. Given the non-binding nature of Betcha’s wagering system, no actual gambling occurred.

The case is Internet Community & Entertainment v. State Of Wa Gambling Comm’n.

HT: Venkat


Pennsylvania Judge Rules that Poker is a Game of Skill

January 21, 2009

Pokernews.com reports that a Pennsylvania judge has ruled that poker is a game of skill. His ruling dismissed a case in which Walter Watkins was charged with running an illegal Texas Hold’em game.

Most state anti-gambling laws prohibit games of chance when money is involved. However, games of skill usually have less restrictions.

In issuing his decision, Judge James cited the large number of poker books available, among other factors, as proof of the game’s skill elements. Said James, “Simply, if chance predominates, Texas Hold’em is gambling. If skill predominates, it is not gambling.” Later, James closed with, “It is apparent that skill predominates over chance in Texas Hold’em poker.”


Kentucky v. 141 Domain Names Order

October 16, 2008

The order in Kentucky v. 141 Domain Names has been issued. As my firm is involved in this case, I can not comment too deeply on it. However, here is an outline of notable points in the ruling.

  1. Domain names are “property” subject to seizure. The court relied on the holding in Kremen v. Cohen, 337 F.3d 1024 (9th Cir. 2003). See Order at 12-15.
  2. The Kentucky Court has jurisdiction over the domain names by virtue of the Court’s holding that the domains have a “presence” in Kentucky. See Order at 15-22.
  3. The domain names are “gambling devices” as defined under KRS 520.010(4)(a) & (b) since they allow Kentuckians to access gambling services. See Order at 22-25.
  4. Poker, despite having significant elements of skill, is still “gambling” and a game of chance. See Order at 25-26.
  5. Any domain names that block access to Kentucky residents are to be relieved of the forfeiture order. See Order at 39-40.

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