In one of the first decisions allowing individual states jurisdiction over companies putting up Web sites anywhere in the United States, a Minnesota judge handed down an order Thursday on a long-pending civil suit against an online gambling company. The order on Granite Gate Resorts v. Minnesota will allow the state to sue a Nevada company for its intention to put up a sports betting site - even though the company intends to run its gambling business out of Belize.
"This could have a chilling effect on a lot more than online gambling," says EFF staff attorney Shari Steele. "It will reduce anyone doing anything on the Net to the lowest common denominator" as dictated by the states.
The Granite Gate Resorts case was filed in early 1995 as part of an attack on "online scams" by Minnesota Attorney General Hubert Humphrey III. Granite Gate Resorts in Las Vegas (also known as On Ramp or Orix Systems) had placed online advertisements announcing its upcoming sports betting Web site, Wager Net. Although gambling is legal in both Nevada and Belize, it is illegal in Minnesota. Humphrey claims that the Wager Net announcements implied that gambling was legal, and sued the company for fraud; Wager Net director Kerry Rogers in turn filed a motion to dismiss the case due to lack of jurisdiction.
Thursday's order will make Granite Gate Resorts liable under Minnesota law, in one of the first cases discussing whether a state can declare jurisdiction over online content. A case in 1994, US v. Thomas, allowed the operators of a porn BBS in California to be convicted in Tennessee; the legality of the decision has been hotly debated ever since, while the BBS operators sit in prison.
Online gambling is a sticky issue. The legality of gambling or placing a bet differs from state to state, and though there are no federal laws currently regulating online gambling, the Interstate Wire Act makes it illegal to send wager information across state lines using "wire" communications. As a result, many online casinos are moving their operations offshore.
Despite the implications of state jurisdiction over online gambling, I. Nelson Rose, a gambling expert and law professor at Whittier Law School, doesn't think the decision will stop the rapid growth of the online gambling industry. "In the short term it won't have an impact except to drive operators outside the US," comments Rose. "Even if operators are outside the country they could be dragged back, but [there's no] practicality to attempting it."
The notion amuses Wager Net's Rogers, who said he'll base his operations south of US jurisdiction. "Can you imagine the state of Minnesota telling the country of Venezuela, 'Don't do that!'?" he asked with a laugh. "What are they going to do, send down the Minnesota State Militia?"
Still, Steele is worried about the deeper national implications of the law, and how it could affect any person running any controversial Web site. "We're going to see a whole bunch of states going after people putting stuff up on the Web," she said. "The Net is an international medium and it's troubling that individual states can claim jurisdiction."
In the meantime, Rogers is appealing the order, and still plans to operate his sports betting site out of Belize in the future. "The civil case is a tremendous boon to us," he laughs. "It has a downside of a US$25,000 fine if we lose, but you guess what will happen if we win."
