New Allies for the Interactive Gaming Industry

21 June 2007

It is becoming increasingly apparent that the U.S. withdrawal of its World Trade Organization (WTO) commitment to grant free access to the U.S. gambling market is not a gambling issue, but a trade issue--a trade issue which may have far greater repercussions than people yet realize.

The withdrawal of a WTO commitment ("concession" in WTO parlance) must be accepted by all the members of the WTO. While settling Antigua and Barbuda's (Antigua) suit, the United States only had to grant compensatory concessions to Antigua; now, it is subject to claims from all members of the WTO seeking compensation for future damages. When the United States first announced its intention to withdraw its commitment, the question was whether a country such as the United Kingdom, which supports free trade in Internet gaming, would attempt to use the WTO to coerce the United States into opening access to the U.S. market. In WTO matters, the nations of the European Union have agreed to operate as a single entity, not filing actions individually, but only through the European Union. So, the United Kingdom could not act on its own, and the question became one of whether the European Union would seek compensatory damages. That question was answered this week, and the answer is not surprising. Given the fact that the European Union has been attempting to enforce free trade in Internet gambling throughout Europe, there was little reason to think it would not take that campaign worldwide through the WTO.

The United States now has three major concerns.

First, Antigua has informed the WTO that it intends to seek compensatory concessions through suspension of its obligations to enforce U.S. intellectual property rights worth an estimated $3.44 billion annually. That amount of money may not mean much to the United States, but it can mean a whole lot to the individual companies which own the U.S. trademarks, copyrights and patents, which will be infringed.

Second, the compensation which will be sought by the European Union, and perhaps other nations, will dwarf that already sought by Antigua, and threaten to inflict significant economic damage on the United States and the U.S. corporations affected.

Third, and perhaps worst of all for the United States, is the issue of whether the United States is setting a precedent for other nations to withdraw WTO commitments they no longer find convenient. The withdrawal of commitments has occurred only once in the history of the WTO. That was when the countries of Eastern Europe joined the European Union and were permitted to withdraw their individual commitments in favor of the EU commitments. The change was accepted by the nations of the WTO because it was in the overall interest of expanding the global economy. There has never been an instance of an individual country attempting to withdraw a commitment as the United States is now attempting to do.

It is generally accepted that the United States is the world's greatest beneficiary under the WTO agreements, and to date it has filed 88 WTO complaints against other nations. Will some of those nations now look at withdrawing their commitments? Will China or other nations consider withdrawing commitments to enforce intellectual property rights and prevent the counterfeiting of trademarked, copyrighted and patented goods? The Internet gaming industry may now have new allies, and they will not be found in the gambling sector. They will be found in other diverse U.S. industries, such as the U.S. recording and movie industries, the toiletries industry, the holders of U.S. trademark rights to popular brand name women's apparel and accessories. It is these parties, which are always fighting piracy and which have benefited greatly under WTO commitments, that could be put at risk.

What is so ironic is that all the United States originally had to do was open up the market for Internet waging on horseracing. Instead it has invited economic turmoil, while Internet betting on U.S. horseracing is not only permitted under U.S. law, but expanding worldwide to the benefit of the entire U.S. horseracing industry as well as the states where the races are run.

Mr. O'Brien is an attorney with Greenberg Traurig, and has been practicing Internet gambling law for the past 10 years, providing legal counsel to operators of sports books, casinos and poker rooms, payment processors, financial institutions and media outlets.