News analysis: Judge's ruling stacks odds against iMEGA

12 March 2008

U.S. District Court Judge Mary Cooper sent two very clear messages to the online gaming industry last week:

1. The courts are not going to overturn the Unlawful Internet Gambling Enforcement Act (UIGEA) because the law is either ineffective or unwise.

2. The iMEGA case has very little chance of overturning the UIGEA.

The only glimmer of hope Cooper gave iMEGA was she granted it "standing" on certain issues.

"Granting iMEGA standing is a major victory any way you look at it," said iMEGA attorney Eric Bernstein after the ruling came out. Buffalo State business law professor Joe Kelly agrees, saying, "Standing was a major victory, especially with the federal government winning on every other account."

By granting standing, the court says iMEGA can claim injury by the UIGEA and has the right to appeal Cooper's ruling on the First Amendment issues raised in the case, Kelly explained.

"But it's very much an uphill battle," Kelly added.

The reason is that Cooper dismissed the iMEGA's First Amendment claims on the merits, and the rest of iMEGA's arguments on both standing and the merits.

"(The) UIGEA does not have any adverse impact, much less a significant one, on the ability of the plaintiff and its members to express their views on Internet gambling," Cooper said in her ruling.

Cooper also rejected the argument that gambling was a form of free speech.

"The plaintiff has not identified, and the Court does not discern, any 'communicative element' inherent in the only conduct criminalized by UIGEA -- the taking of another's money," she wrote.

The commercial speech aspects of iMEGA's case were similarly dismissed by Cooper.

"The plaintiff's commercial speech claim also is without merit," Cooper wrote. "The acceptance of a financial transfer is not speech."

"As the UIGEA does not impact expression, it does not come within the purview of the First Amendment," Cooper added.

Cooper also ruled that iMEGA did not have standing to pursue claims that the UIGEA violated privacy rights. But even if it did, Cooper wrote, iMEGA would still lose, saying the laws iMEGA cited as precedents do not lend support to the idea that "non-speech related activities occurring over the Internet somehow intrudes on the right of privacy."

iMEGA's WTO claims also fall short as "a matter of law," Cooper says, because private entities can not challenge laws on the basis that they violate Uruguay Round Agreements. That right, by law, falls under the sole province of the government.

In dismissing iMEGA's claim that the UIGEA abrogated the rights of individual states to regulate online gaming, Cooper ruled "the regulation of interstate financial transfers -- an economic activity necessarily impacting interstate commerce -- would be a proper exercise of Congress's interstate commerce powers" and "Congress had a rational basis for concluding that the acceptance of Internet financial transfers for gambling purposes substantially affects interstate commerce."

That means it was within Congress' powers to pass the UIGEA. And because Congress was within their rights to pass the law, challenging it as a law that doesn't work isn't going to fly in the court systems.

"The plaintiff's claims express a fundamental disagreement with Congress's judgment that Internet gambling should be controlled legislatively, and pose questions as to whether UIGEA, given its exceptions and conjectural enforcement problems, will be successful in accomplishing its desired ends," Cooper said in the conclusion to her ruling. "But it is not the Court's role to pass on the wisdom of a Congressional act or speculate as to its effectiveness. The Court has determined that the challenged statute was lawfully enacted and does not impermissibly intrude on the Constitution's guarantees."

Perhaps the most intriguing part of Cooper's ruling came in a footnote, where she notes "UIGEA exempts purely financial entities from criminal liability...Financial businesses would only be subject to regulatory enforcement."

In essence, that means the Treasury Department and the Federal Reserve will be setting the punishment for non-compliance.

Vin Narayanan

Articles by Vin Narayanan is the former managing editor at Casino City and has been involved in the gaming industry for over a decade Vin is currently based in Hong Kong, where he runs his own consultant group and works as head of gaming and public relations for Mega Digital Entertainment Group.

Before joining Casino City, Vin covered (not all at the same time) sports, politics and elections, wars, technology, celebrities and the Census for, USA WEEKEND and CNN.