Public schools and libraries in the U.S. can save a lot of money on Internet service by applying for the Schools and Libraries Program, a federal subsidy better known as E-Rate.
E-Rate funding, capped yearly at $3.9 billion, helps eligible institutions cover costs of Internet service. Participants can save anywhere from twenty to ninety percent of their Internet expenses—the precise amount being dictated by the economic standing of both the participating institution and the school district where it is located.
E-Rate and three other programs are part of the Universal Service Fund (USF), a system of subsidies born out of the Telecommunications Act of 1996 as a way to ensure affordable telecom rates across the country. Although the Federal Communications Commission (FCC) oversees the USF, the fund is managed by a nonprofit corporation called the Universal Service Administrative Company (USAC).
Detailed information on how to apply for E-Rate can be found in the Schools and Libraries Program overview. Basically it works as a bidding process. An applicant fills out FCC Form 470, requesting specific services, and submits it to the USAC. The USAC then issues an RFP for telecom providers who want to bid for the requested services. After 28 days, the applicant can study the bids. When it selects one, it requests E-Rate funding by filing FCC Form 471 within a deadline set by the FCC (for FY2016 it is May 26).
The discount rate is generally determined by the size of the population, in the applicant’s school district, that qualifies for the National School Lunch Program. The applicant must also file Form 486, listing services for which funds are requested and ensuring compliance with the Children’s Internet Protection Act.
There are limits to what E-Rate can cover. The applicant is solely responsible for end-user equipment, like hardware and software, and also for any non-discounted portions of Internet services.
While it is a great opportunity to save money, E-Rate isn’t a free-for-all. To discourage abuse and misuse of the program, the FCC requires applicants to comply with a series of rules, notably:
- Compliance with state and local law. It’s not enough to follow the FCC standards only.
- Applicants cannot seek discounts for services not requested. In other words, services listed on Form 471 must match (or not exceed) services requested on Form 470.
- Fair, competitive bidding. Applicants are responsible for ensuring an open, fair, and competitive bidding process to select the most cost-effective provider.
- Document retention. Applicants must save all competing bids for services to demonstrate they selected the most cost-effective bid, with price being the primary consideration. Records should be kept for at least ten years after the last date of service delivered.
- CIPA compliance. Applicants must confirm compliance with the Children’s Internet Protection Act, which requires schools and libraries that receive federal funding to employ Internet filters that protect children from harmful content.
In spite of these rules, the wealth of funds in the E-Rate program can attract abuse. In response, the FCC created the USF Strike Force in 2014 and tasked it with combatting waste, fraud, and abuse of the USF programs. Federal agents have shown that they are serious about investigating alleged abuses. One widely publicized case in Ramapo, NY, recently led to several raids. We will look at that case and others like it in upcoming posts.
If you’ve ever let your kids sign into your Netflix or HBO Go account, or given your marketing department access to your Twitter feed, you may be committing a federal crime, depending on how the Ninth Circuit rules on a case argued before it just last month.
The case, United States v. Nosal, is the latest chapter in a series of cases in which federal prosecutors have used a thirty-year-old anti-hacking statute to turn seemingly routine business disputes into federal felony cases. The statute, known as the Computer Fraud and Abuse Act (CFAA), contains broad prohibitions on accessing a computer system “without authorization” or in a way that “exceeds authorized access.” Though intended to prevent malicious hacking and espionage, those prohibitions have repeatedly been applied to disgruntled former employees who logged back into company databases to access proprietary information after their termination and when their authorization to access those files had been revoked.
However, the Nosal case goes a step further, and a ruling in favor of the United States threatens to criminalize password sharing of all kinds. Nosal was an executive at the recruiting firm Korn Ferry International (KFI). After he left the firm, he obtained the help of several former colleagues to obtain protected KFI data to start a competing business. Although several of the charges against Nosal were thrown out in an earlier case, he was still prosecuted for accessing KFI files using his former assistant’s login information, which she had given him willingly.
According to prosecutors, Nosal’s former assistant was not authorized to give him access to KFI’s systems under the company’s computer usage policy, and so his use of that password was “without authorization” by the proper authorities. Upholding that argument could have a broad reach because so many password-protected services have prohibitions against password sharing in their user agreements, including Netflix, LinkedIn, Facebook, and HBO Go, to name a few. For that reason, a ruling that the CFAA prohibits password sharing when not authorized by these agreements could turn us all into criminals.
Following argument, this case is difficult to handicap. Although Judge McKeown seemed particularly concerned with the fact that Nosal clearly had engaged in wrongful conduct when he knew his authorization had been revoked, Chief Judge Thomas and Judge Reinhardt clearly recognized the scope of the issue at stake, and all three panel members were concerned by the government’s apparent lack of a limiting principle.
A ruling can be expected in the next few months. Until then, all we can do is hold our breath, and hope that the court ensures that the next time we share an account with the others in our household, we won’t end up living an episode ofOrange is the New Black instead of just watching it.
A Canadian federal court recently released an opinion holding that meta tags, at least in some circumstances, are not entitled to copyright protection. Although the precedent is not binding in American courts, the well-reasoned opinion provides an excellent logical analysis on why meta tags may or may not be afforded copyright protection.
In Red Label Vacations Inc. v. 411 Travel Buys Limited, the plaintiff travel business implemented meta tags including its registered trademarks: “redtag.ca,” “redtag.ca vacations,” and “Shop. Compare. Payless!! Guaranteed.” The defendant is a competing travel business in the Canadian market. In 2009, Red Tag experienced a drop in sales and noticed that search engine results for its company were returning results for its competitor, 411 Travel Buys. Upon further inspection, Red Label found that 411 had apparently copied its metadata including content, ordering, and misspellings. Red Label informed 411 of the violation and 411, being Canadian, immediately removed the content. Nevertheless, Red Label brought suit for lost profits during the period it was active.
In analyzing the duplicated meta tags, the court concluded that the tags were substantially derived from a list of Google keywords which were incorporated into phrases describing travel. The court held that there was little evidence of any degree of skill, judgment, or creativity in creating the meta tags at issue in the case. The court noted that there may be circumstances in which meta tags are so creative and original so as to qualify for copyright protection, but they were not present here.
The court further found that there was not substantial copying when viewing the website as a whole. Defendant 411 copied 48 pages out of approximately 180,000 on Red Tag’s website. The court considered substantial similarity between the original work and the allegedly infringing work when viewed as a whole, and did not find that a substantial reproduction had occurred.
Even though 411 used Red Tag’s trademarks in its meta tags, the court held that no trademark violation had occurred because the meta tags were not visible to the site’s visitors, but were rather used by search engines. The court found that even if a patron had reached the 411 site by searching for Red Tag terms, once visitors arrived at the website they would have no doubt that they were at the site of 411. Notably, the Canadian court identified a substantial difference between its law and trademark law in the US. In the US, a court may find a trademark violation occurred where trademark use causes “initial interest confusion” where a patron searching for one company diverts their business to what the patron realizes is a different company offering a similar product or service. Regardless, the Canadian court indicated that it wouldn’t find a trademark violation even under the initial interest confusion test, because when search engines use meta tags they return a list of links that customers may choose from at will, rather than directing the viewer to a particular competitor.
Despite the Canadian court’s thoughtful and in-depth analysis, in the six years since the events of the case meta tags have increasingly become a relic of the past as search engines increasingly use their own algorithms to determine search results. However this is still a claim that many plaintiffs include when throwing in the kitchen sink in a trademark case, and it would not be surprising to see US courts cite to the reasoning of our neighbors to the north in future decisions.
Since the 1990s and the rise of the Internet and social media, each one of us has become increasingly aware of the risks and dangers of unwanted posts and how fast a “discreet” image can go viral. The development and evolution of the Internet has brought with it a host of novel legal issues, from the worldwide threat of cyber bullying to disgruntled employee posts, a flippant press of a button can mean tremendous consequences and legal challenges for many involved parties. Combine the viral nature of an image with the fuel of raw emotions over a breakup with a spouse or former lover and it is a recipe for disaster!
In a case that is considered the first of its kind, a website operator was found criminally liable for identity theft and extortion by a California state jury last week. The defendant operator Kevin Bollaert owned the website YouGotPosted.com, which permitted jilted lovers to submit nude pictures of their exes in order to publicly humiliate them. The site would identify the victim by name and also include the victim’s phone number next to the photo. On a sister website set up by the same operator, ChangeMyReputation.com, the victims were asked to pay up to $350 in order to have the photo removed. Between December 2012 and September 2013, less than one year, the site put up over 10,000 posts.
“Revenge porn” sites like this one permit the online posting of nude and sexual photos of people, by its nature mostly women, whose exes post the images to try to humiliate them. Images can also be easily picked up by other websites, so even if a person succeeds in getting images removed from one site, it may be difficult or impossible to remove them completely from the Internet. So, of course this sounds like it would clearly be illegal? Not so. Perhaps surprisingly, most states do not make it a crime to post people’s photos or personal information online without their permission. Many revenge porn sites have popped up in recent years and have brought national attention, as states scramble to enact laws or amendments to existing laws to help the defenseless victims. With the quick rise of revenge porn, states have often used laws already in existence to prosecute those accused of committing revenge porn, such as laws against disseminating pornography or laws protecting privacy. Even so, many current laws regarding invasion of privacy, harassment or disorderly conduct were enacted long before revenge porn was contemplated or became a rising concern. Oftentimes, a loophole makes it difficult to prosecute because the victims don’t own the photographs in which they appear or have voluntarily disseminated the photo without the intention of it going viral. It is for this reason that in the past few years, sixteen states have enacted criminal revenge porn laws, and there is legislation pending in over twenty additional states.
The case against Bollaert was the first conviction following California’s revenge porn bill, signed into law in October 2013 by Governor Jerry Brown. The law amends the state’s disorderly conduct law and makes it a crime to post nude photos of another online without permission and with intent to publicly shame the subject. However, this law as first drafted did not include photos taken as “selfies” but only those taken by another party. To remedy this, the law was subsequently amended, which will take effect in July of this year. Unlike other revenge porn sites, though, YouGotPosted.com permitted users to share personally identifying information about the photo’s subject. Bollaert was therefore prosecuted for identify theft and extortion, not under the revenge porn law. Bollaert faces up to 20 years in state prison when he is sentenced on April 3.
So, is this case unique due to the egregious nature of the facts, or should website operators beware of government’s tightened grip on website content? I think the answer is both. The facts are egregious but far from uncommon and increasingly more frequent. As devious players contemplate use of the Internet in unprecedented ways, state laws are feverishly attempting to catch up to evolving technology. While many object to such laws based on First Amendment free speech rights, it seems that governments are in fact taking stricter control over website content, with new laws and amendments pending in almost half the states in order to close the loopholes currently existing on this issue. Even so, there is a lesson to be learned to prevent humiliation and the time and expense of litigation – for all of those who leave their smart phones next to their beds, think twice before undressing and snapping!
This afternoon at the iGaming North America 2014 conference an interesting panel, “Visionaries’ Perspective—Is i-Gaming the Problem or the Solution?” explored two vastly divergent viewpoints on online gaming in the United States. The panel was moderated by Steve Lipscomb, the Founder of the World Poker Tour, and featured, Mitch Garber, the CEO Caesars Acquisition Co. and Caesars Interactive Entertainment, and Andy Abboud, Vice President of Government Relations, Las Vegas Sands Corp, which is owned by billionaire Sheldon Adelson.
Abboud made clear the positions of his Las Vegas Sands from the start stating, “We are not fans of online gaming.” Abboud expressed caution because he felt that there is a strong presence of illegal operators in the industry and that was what the company feared, not the legalized regulated gaming that is currently offered in Delaware, New Jersey, and Nevada.
Garber called attention to Abboud’s stance differing from Adelson’s public position, which is that iGaming should not be permitted in any context. Adelson has made it clear publicly that he intends to spend large sums of money to defeat online gaming, and federal legislation to do so may be forthcoming.
Abboud said that the Las Vegas Sands supports legislation to restore the Wire Act and make it clear that the Wire Act prohibits online gaming as well as sports betting. Abboud emphasized that he believes that the industry is dependent on a Wire Act opinion that was issued by Attorney General Eric Holder, but that interpretation of the Wire Act could be overturned by a new administration or a change in perspective from the current administration. Abboud emphasized that he believes the industry needs to be much more cautious in its approach before moving forward, on the law and in terms of consumer protection.
Garber emphasized that he believes that both the federal government and the individual states are capable of regulating online gaming. Garber stated that the consumer protection controls that are in place online are even stronger than in the land-based casinos. Online casinos have the ability to track the money players deposit, view their hand histories, age and ID verify all participants.
The lively exchange highlighted the divergent perspectives on online gaming in the United States. The debate will continue to play out in the future, but we believe that online gaming is here to stay and the companies that believe that it will cannibalize the land-based casino industry will be proven wrong in time as more states join the market.
Jeff Ifrah Presents on the Future of Online Gaming at J.P. Morgan Global High Yield & Leveraged Finance Conference
Yesterday, at the annual J. P. Morgan Global High Yield & Leveraged Finance Conference in Miami Beach, Florida, Ifrah Law Founding Member Jeff Ifrah shared his predictions for the growing online gaming industry in the U.S. and in Europe. Susan Berliner, an analyst with J.P. Morgan who covers gaming and lodging, moderated the panel, which also included Marc Falcone, CFO of Fertitta Entertainment/Station Casinos, and Eamonn Toland, President of Paddy Power. The panelists addressed the potential for online gaming’s additional expansion in the states as well as payment and logistical issues.
J.P. Morgan’s conference attracted a crowd of over 1,000 CEOs, CFOs and other C-Suite executives from high-growth companies across an array of industries, including gaming, entertainment, energy, and transportation and institutional investors. Questions from attendees at Tuesday’s panel indicated that investors were most interested in the rollout of online gaming in the three states that presently permit it: Delaware, Nevada, and New Jersey.
Ifrah noted that one study predicts online gaming revenues in the U.S. to reach approximately $670 million. According to Ifrah, how online gaming grows depends on what the states do to permit gaming and their licensing processes and what other states come online in the near future. Ifrah shared that just a couple hours before, Delaware and Nevada announced an historic agreement to pool their liquidity to increase their prize pool, allowing poker players in those states (and any other states which may subsequently sign on to the agreement) to play online poker offered by operators in either state, and to play against players in the other state. Governor Sandoval of Nevada and Governor Markell of Delaware met in Wilmington yesterday to announce this exciting development. The State of Delaware, an Ifrah Law client, launched online gaming in November.
Marc Falone of Station Casinos observed that run rate revenues for online gaming are estimated at $150 million in 2014. While online gaming is still in the early stages, it has the potential to be a much larger business with significant long-term growth potential. Falcone pointed out five challenges to online gaming growth, about which the panel generally agreed:
* General awareness – many consumers still do not understand that online gaming is legal in Delaware, Nevada, and New Jersey, which hinders participation and growth.
* Payments – despite online poker’s legality in the three states, Mastercard, Visa and other payment processors nevertheless decline to make deposits on online gaming sites.
* Geolocation – the states utilize geolocation technology to confirm that only residents in those states play. Many individuals have found the geolocation confirmation process unwieldy and difficult with which to interact, causing them to choose another activity. Falcone, Ifrah and the other panelists agreed geolocation technology and ease would improve over time.
* Security – in the age of high profile data breaches at Target, Neiman Marcus and elsewhere, and a reported breach on the Sands website, consumers’ interest in online gaming may be chilled. New Jersey requires a player enter a social security number. Consumers are understandably reluctant to provide that type of sensitive personal information in a website form. Industry needs to continue to work on secure procedures that will boost consumer confidence.
* Offshore gaming – licensed operators in the three states still compete with offshore gaming sites.
Eamonn Toland of Paddy Power stressed that online gaming revenues are currently as anticipated; growth takes time as consumers become more aware and some of the “wrinkles” identified above are ironed out. He sees a significant revenue growth of 28% month-to-month. As to whether online gaming “cannibalizes” land-based casinos, Toland and the other panelists concurred that the online gaming player is an entirely different demographic and they did not see the cannibalism effect. Toland believes online gaming will grow significantly as states contract with each other like Delaware and Nevada just announced.
As to other states that may authorize online gaming, Ifrah and the other panelists mentioned California, Illinois, New York, and Pennsylvania as potential markets. The panel participants cautioned that while these are exciting developments at the state level, the federal government would be monitoring online gaming operations to see if there are any significant issues, such as consumer protection issues. However, at least one panelist believes that online gaming has extensive protections – such as age verification, protections for problem gamblers – that result in fewer losses for consumers than in land-based casinos.
A November 2013 ruling from the United States District Court in a bankruptcy case may create an obstacle for a tactic increasingly popular among federal prosecutors – the seizure of a defendant company’s domain name.
The statutes permitting civil and criminal forfeiture in U.S. District Courts – Title 18, United States Code Sections 981 and 983, respectively – both authorize seizure of “property.” In a number of prominent (and not so prominent) cases, federal prosecutors have seized a defendant company’s domain name, which may shut down the company’s operations during the pendency of the case. But it does not appear that any Court has squarely considered, in a forfeiture context, whether a domain name constitutes “property” that may be seized and forfeited.
Alexandria Surveys, LLC v. Alexandria Consulting Group, LLC, Civil Action 1:13—CV-00891, Bankr. Case No. 10-11559-BFK, was not a forfeiture case, but it may have set the table for a forfeiture defendant to argue successfully that a domain name may not be seized. In Alexandria Surveys, the District Court reviewed a ruling in the Bankrupcty Court relating to the sale of certain assets previously belonging to the debtor. In the case, the debtor argued, among other things, that the sale of the debtor’s web address and telephone numbers was improper because neither were the “property” of the bankruptcy estate, and therefore neither could be sold by the trustee.
In considering the issue, the Court noted a split in the Circuits as to whether a telephone number constitutes property of an estate. Compare Rothman v. Pacific Tel. & Telegraph Co., 453 F.2d 848, 849-50 (9th Cir. 1971) (trustee lacks right to distribute telephone number as property of the estate); Slenderalla Sys.of Berkeley, Inc. v. Pacific Tel. & Telegraph Co., 286 F.2d 488, 490 (2d Cir. 1961) (same) withDarman v. Metropolitan Alarm Corp., 528 F.2d 908, 910 n.1 (1st Cir. 1976) (permitting trustee to distribute telephone number as property of estate); In re Fontainebleau Hotel Corp., 508 F.2d 1056, 1059 (5th Cir. 1975) (same).
The Court observed that, while the Fourth Circuit Court of Appeals has not yet addressed the issue, state law determines the contours of property interests assumed by the trustee. In that regard, the Court noted the Virginia Supreme Court’s relatively recent decision in Network Solutions, Inc. v. Umbro International, Inc., 529 S.E.2d 80 (Va. 2000), in which that court specifically held, in the context of a garnishment action, that a web address and telephone number could not be garnished by a judgment creditor because the debtor lacked a property interest in them. 529 S.E.2d at 86-87.The court held that a domain name registrant acquires the contractual right to use a unique domain name for a specified period of time, and that the domain name is not property, but rather, “the product of a contract for services.” Id. Without diminishing the importance and significance of web addresses and domain names, the Alexandria Surveys court followed the holding in Network Solutions that they did not constitute “property.”
While Alexandria Surveys did not deal specifically with the law of forfeiture, the holding that domain names do not constitute property has significant implications for civil and criminal forfeiture cases. The case is not binding on other courts, but given the paucity of precedent characterizing domain names, this analysis may be viewed as instructive by courts considering claimants’ and defendants’ challenges to domain name seizures. And a shift in the law that did not permit those seizures would deprive the government of a significant piece of leverage that it now wields in many cases.
Last month, the Missouri Court of Appeals published its opinion holding that criminal defendant David Polk is not entitled to a new trial. Although the prosecutor may have acted improperly by posting trial updates via Twitter, there was no evidence that her updates swayed the jury to convict Polk. The court’s decision resolves a once-cold case that began in St. Louis more than twenty years ago.
In January 1992, Polk approached an eleven-year old girl on the street, then forced her to the basement of a vacant lot and repeatedly assaulted her. Soon after, the victim and her mother reported the crime to local authorities, who collected DNA and other evidence. After that, the case went cold. But three years ago, authorities were notified of a DNA match linking Polk to the crime. The investigation was reopened and culminated in Polk’s prosecution for forcible rape and forcible sodomy. A jury convicted on both counts, and Polk was sentenced to fifteen years on each count.
After trial, Polk asked the judge to dismiss the case or strike the jury panel. In support of his request, Polk submitted evidence that, during the time frame of the trial, Circuit Attorney Jennifer Joyce had posted inappropriate comments about the case on Twitter:
- Prior to jury selection, Joyce tweeted, “David Polk trial next week. DNA hit linked him to 1992 rape of 11 yr old girl. 20 yrs later, victim now same age as prosecutor.”
- During trial, Joyce posted two comments. In the first, she tweeted, “Watching closing arguments in David Polk ‘cold case’ trial. He’s charged with raping 11 yr old girl 20 years ago.” In the second, she tweeted “I have respect for attys who defend child rapists. Our system of justice demands it, but I couldn’t do it. No way, no how.”
- During deliberations, Joyce tweeted, “Jury now has David Polk case. I hope the victim gets justice, even though 20 years late.”
- Post-verdict, she tweeted, “Finally, justice. David Polk guilty of the 1992 rape of 11 yr old girl. DNA cold case. Brave victim now the same age as prosecutor,” and “Aside from DNA, David Polk’s victim could identify him 20 years later. Couldn’t forget the face of the man who terrorized her.”
According to the defense, Joyce’s comments not only violated the professional rules of conduct but tainted the jury verdict as well. But the trial court refused to dismiss the indictment or strike the jury, and Polk appealed.
In a decision published last month, the appeals court affirmed Polk’s conviction, but acknowledged that the Circuit Attorney’s posts were problematic. The court admitted that her comments may have violated the rules of professional conduct for prosecutors. The rule in question prohibits prosecutors from making out-of-court statements that stoke public sentiment against the accused unless they serve a legitimate law-enforcement purpose. Joyce’s tweets may have crossed the line. They did not appear necessary to inform the public, but highlighted evidence against the defendant, dramatized the victim’s plight, and referred to Polk as a “child rapist,” a term that was likely to arouse heightened public condemnation.
The Court of Appeals also noted that such posts have the potential to taint a jury verdict. But the law required Polk to show more than potential prejudice—he had to show that the extrajudicial comments “substantially swayed” the jury. Because he proffered no evidence that jurors were aware of, much less influenced by, the posts, Polk was not entitled to a new trial.
Jennifer Joyce is not the first prosecutor to catch flak for abusing social media. Cleveland prosecutor Aaron Brockler was fired after he contacted defense witnesses on Facebook and dissuaded them from providing alibi testimony. But the issue in that case was the prosecutor’s confirmed use of deception to influence trial witnesses. The issue in Polk’s case was whether the prosecutor’s tweets influenced the jury, as alleged. There was no evidence to that effect, so the conviction was affirmed.
The Cheyenne and Arapaho Tribes have filed suit against Secretary of the Interior Sally Jewell after the Department Interior blocked their effort to offer real-money online gaming to international customers.
The Tribes were prepared to launch Pokertribes.com after coming to a revenue-sharing agreement with the state of Oklahoma. Pursuant to the terms of the agreement, the Cheyenne and Arapaho Tribes were permitted to offer their online gaming to clients overseas, but were prohibited from offering gaming to clients in Oklahoma or elsewhere in the United States. Under the compact, the tribe would pay the state 4 percent of the first $10 million in annual net revenue from electronic gaming, 5 percent of the next $10 million and 6 percent of any subsequent amount, plus a monthly 10 percent from non-house banked card games.
However, the Department of Interior Assistant Secretary of Indian Affairs disapproved two versions of the plan, in August and November 2013 respectively, finding that the state of Oklahoma could not offer exclusive access to an international market and that therefore the state’s “concession is illusory” and it is not entitled to revenue sharing. Notably, however, the Department of Interior explicitly declined to “reach the issue of whether internet gaming as contemplated in the Agreement was lawful,” restricting the basis of its opinion to the fact that “the State has not offered a meaningful concession” sufficient to justify sharing revenue from the online games. Since the Department did not approve the agreement, Pokertribes.net is currently inactive.
The Cheyenne and Arapaho Tribe filed the complaint against the Department of Interior on December 26, 2013 alleging that its decision was arbitrary and capricious, an abuse of discretion, and otherwise contrary to law. The tribe seeks declaratory and injunctive relief to prevent further obstruction of the website’s operation. The case is currently pending before Judge Timothy D. DeGiusti in the Western District of Oklahoma.
Instead of trying to resolve this issue through litigation, we think the better path forward for the Tribes would be to use their political leverage to pass state legislation allowing the Tribes to offer intrastate online gaming to Oklahoma residents, as well as to players internationally. If the Tribes were successful in getting this legislation passed, their authority to offer online gaming would be derived from state law rather than tribal compact and would therefore preclude federal involvement. Offering gaming to Oklahoma residents as well as international customers would also resolve any concerns about the state’s allegedly illusory concessions.
As long-time observers of and participants in the internet gaming industry, we at Ifrah Law looked forward to 2013 as a year full of promise for internet gaming, particularly in the United States. In the end, industry progress in 2013 was mixed:
The year saw the enactment of online gaming in New Jersey and online poker in Nevada and Delaware, but also saw a district court judge and then a three-judge panel of the United States Court of Appeals for the Third Circuit block New Jersey from proceeding with sports betting. During 2013, a number of the individual defendants charged in the Black Friday case in the Southern District of New York settled their cases, and the former customers of Full Tilt Poker saw the beginnings of the remission process that is promised to return to them some or all of the money they had on deposit with Full Tilt at the time of the April 2011 seizures.
After a year filled with so many changes, we naturally are looking forward to see what will happen in theinternet gaming industry in 2014. Here are a few of our predictions:
This past year we witnessed the definitive shift away from an expectation that poker would be legalized through federal legislation, and toward state-by-state enactment of regulatory schemes for online poker. The limitation of the state-by-state approach, of course, is that the legalization of poker in a state only permits individuals in that state to play against other individuals in that same state. In a state like Nevada or Delaware with small populations (and small player pools), there will be significant pressure to increase player liquidity by executing agreements with other states that will permit individuals from all of those states to play against one another. It is very likely that Delaware, New Jersey and Nevada will enter into a multistate poker agreements with each other in 2014, and that any other states that enter the market will be close behind. To the extent that states other than New Jersey authorize online gaming other than poker, those agreements may also encompass other games such as slot machines. The result will be more people at the tables, bigger prize pools, and more competitive games. This, in turn, is likely to increase the popularity of the games, meaning more money coming in for the states to share. And more money will likely to encourage states on the sidelines to enter the market to get a cut of the earnings. These latecomers may actually rely on the established regulatory bodies – such as those in New Jersey and Nevada – rather than creating licensing and regulatory infrastructure in their own states.
It seems obvious to us that other states will want to tap into online poker or gaming as a source of revenue. But it is less clear which states will make the move – particularly the states with massive markets like California. With a population of some 38 million people, California has nearly five times the population of New Jersey and more than a dozen times the population of Nevada, making it potentially the most lucrative online market in the United States. So will California join the fray in the coming year? Odds are even; numerous bills have been discussed in the past, but the state will have to start accelerating its legislative agenda in order to get anything off the ground in 2014. The prominence of tribal gaming in California poses special challenges, as the Native American tribes – who view gaming as their special prerogative –will undoubtedly demand a significant share of revenues. The only certainty is that, if California does enact online gaming, the size of its population will permit it to dictate to other states the terms of interstate agreements for its players.
Hail Mary Pass
No list of predictions for the year would be complete without calling one longshot. In 2012, New Jersey attempted to enact sports betting in its casinos, but progress was barred after a suit by the National Collegiate Athletic Association and professional sports leagues under the Professional and Amateur Sports Protection Act (PASPA). The past year saw the district court issue its injunction in NCAA v. Christie, and a federal appellate court uphold that prohibition. This year we will see whether the United States Supreme Court will take the case and, if so, how it will rule. The case poses just the kind of issues that the Supreme Court often addresses, including the balance of power between the power of the federal government and the rights reserved to the state by the United States Constitution. If the Supreme Court were to hear the case and rule in favor of New Jersey, intrastate sports betting would undoubtedly soon begin, and be followed soon thereafter by online sports betting. But the numbers do not lie: The Supreme Court historically acceptsfewerthan one percent of thecases it is asked to hear. In the end, we have to concede that a favorable ruling from the Supreme Court is a bit of a HailMary pass. But like its football namesake, to watch it happen can be awfully exciting because of what is at stake.
Here at Ifrah Law we will be keeping a close watch on developments in 2014 so that our clients may benefit from all of the new opportunities that are sure to appear in the online gaming industry.