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Kentucky Domain Name Seizure Case

From December 2008 Microgaming withdrew its online casinos from the American market. Microgaming is the largest software provider to the online casino industry. This act by Microgaming created an upheaval in the American online casino industry. Millions of American online players were stranded. This withdrawal was not of Microgaming’s own volition. It was pushed to the brink by a legal case that has come to be known as the Kentucky domain name seizure case.

On September 23 Governor Beshear of Kentucky obtained an ex-parte order from the court for the seizure of 141 domain names under Kentucky law. His argument was that online casinos were illegal and were eating into tax revenues the state obtained from land casinos and horse racing. The domain name holders under the umbrella of iMEGA went in appeal against this order.

The appeal was heard by Judge Wingate who on October 16 ruled against the domain name holders. He dismissed their argument that domain names were not “devices” and only devices could be illegal under Kentucky law. He held that Kentucky had jurisdiction over the domain names and that iMEGA had no standing to represent the domain name holders. Judge Wingate gave the domain name holders up to November 17 to disconnect Kentucky from their operations. The final order was to be passed on November 17.

There were Microgaming licensees in the domain name holders. In order to comply with the court’s orders Microgaming discontinued service to its Kentucky clients from November. But it was not comfortable with the prevailing legal environment. Right through the hearing Microgaming was being targeted by the state’s attorneys even though it did not operate online casinos and hence did not directly offer any gambling services to the residents of Kentucky. Further in November the revised UIGEA rules were passed surreptitiously. This compelled Microgaming to withdraw completely from America from December 2008.

Microgaming took this decision despite legal opinion that Judge Wingate’s order would not stand. On October 28 iMEGA filed an appeal in the Kentucky Court of Appeals. Judge Wingate’s final hearing was stayed. The three bench Court of Appeals ruled in favor of the domain name holders in a 2 to 1 decision. The assenting judges ruled that a device had to be mechanical in nature and therefore domain names were not devices. They also accepted that iMEGA had the right to represent the domain name holders.

Now the State of Kentucky will be appealing to the Supreme Court of Kentucky. The legal battle is far from over. The online gaming industry is separately acting against the UIGEA at various levels. Probably Microgaming did not want to be a part of this uncertainty. It knew that it would lose business by taking this step. For example the prestigious online poker room Doyle’s Room left Microgaming. However Microgaming preferred not to have uncertain legal liabilities. It was sure that given its quality it would be able to develop clientele in other parts of the world.

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