It has been suggested that last week's U.S. Supreme Court ruling pertaining to the selling of wine across state borders could have legal implications for the online gambling industry.
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"The case was about wine, but also about interstate commerce, and that means that this case may have a profound effect on the growth of Internet gambling in the U.S."
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In the consolidated cases of Granholm v. Heald (originating in Michigan) and Swedenberg v. Kelly (originating in New York), the court ruled that states cannot ban the online sale of wine from outside their borders while allowing sales within their borders. The Supreme Court case encompassed the interpretation of the Constitution, the intent of the 1933 amendment to end prohibition and changing personal tastes in the age of the Internet.
The case is in many ways similar to those in Europe involving bookmakers' challenges to the legitimacy of government-controlled gambling monopolies blocking foreign competition. The European Court of Justice has ruled that countries allowing certain types of gambling under monopoly systems must open up their borders to foreign licensed European operators offering the same services. Likewise, the court has determined that any country wishing to implement an all-out ban on any or all types of gambling (regardless of where the operators are located) has the right to do so.
The U.S. Supreme Court considered the same principle in the wine case. That is, states have the right to prohibit the sale of alcohol, but any state that regulates such sales online must allow online sellers from other states to access the marketplace. Otherwise, they are in clear violation of the Commerce Clause of the Constitution.
Interactive Gaming News got with California-based attorney Martin Owens for his take on the ruling and how it could resonate within the online gaming industry.
We asked Owens:
How will last week's Supreme Court ruling on cross-border wine sales affect the online gambling industry?
Martin Owens: The case was about wine, but also about interstate commerce, and that means that this case may have a profound effect on the growth of Internet gambling in the U.S.
Why? Because gambling, like alcohol, is a beast with two natures in American law. It is both a licensed source of government revenue and a legendary cause of social problems. And like alcohol, the marketing reach of gambling has been vastly increased by the Internet.
In fact, gambling has benefited more.
It is not possible to drink wine located in another state by means of the Internet, but you can gamble over the Internet at a server located out of state. The comparison is easy to draw: If states cannot pass laws to give a home field advantage to their local vineyards, then they should be equally barred from giving one to their home gambling industries, which is what the WTO Antigua case was all about.
While the Supreme Court case is not an "open sesame" to Internet gambling, it is definitely bad news for state authorities who think they can use their power to license the online gaming industry and then treat it as a one-way street.
In Granholm, the court brushed aside arguments that problems in "protecting the morals of the young" and collecting taxes were serious enough to justify discrimination against out-of-state retailers. And these are exactly the arguments used against Internet gambling by lawmakers seeking to protect their home markets.
The Internet gambling market worldwide is now slated to reach $20 billion dollars by 2010, in the teeth of official opposition. Naturally, it will grow much faster if states legalize and use it, as Georgia, North Dakota and even Texas have considered doing.
What is going to be the decisive feature, in my opinion, is this: States now depend on gambling for revenue, and many of them are finding that a strictly local clientele is not enough. The temptation to tap the consumer base in general will prove irresistible sooner or later. The more intelligent states are already creating regional gaming markets, as with Powerball.
The American version of the Internet gaming genie cannot be kept in the bottle much longer. The day is rapidly coming when state authorities will no longer be able to resist using the Internet to sell their gambling directly to the public. And on that day they will find they are operating in a national and global market, not a private preserve.
It is completely clear in American law, moreover, that a gambling transaction, even if completely illegal, is an article of interstate and international commerce. (Champion v. Ames (the " Lottery Case"), 188 U.S. 321, 354 (1903)).
This can only mean that it as an article of commerce, it is subject to the Commerce Clause, which mandates a level playing field. The latest Supreme Court ruling suggests that for gambling, as with wine, the states cannot have it both ways.
Martin Owens is an attorney who specializes in the problems of operating gambling businesses online. Services emphasize strategic planning and preventive action in such areas as legal compliance and proper corporate structuring, as well as contracts, intellectual property protection, technology transfer, domain names, and the assorted other ramifications of operating online. Feel free to address questions and comments to mowens@trade-attorney.com.