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HEADLINE: State Supreme court hears online gambling case

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Kentucky's effort to seize 141 Internet domain names of online gambling sites was without precedent and blatantly unconstitutional, lawyers representing online gambling interests told the state Supreme Court on Thursday.

"It shows the intellectual dishonesty of the state," said Jon Fleischaker, a lawyer who represents Interactive Media Entertainment and Gaming Association. "They made up the process."

Fleischaker and other industry lawyers argued that the high court should uphold a January Court of Appeals ruling that said the state had no jurisdiction to seize the domain names in a 2008 Franklin Circuit Court action. The appellate court ruling said Kentucky lacks jurisdiction to block online gambling because state law does not define an Internet domain name as a gambling device subject to state authority.

Industry lawyers lambasted the state for seeking a seizure order against the companies in civil court without their knowledge, charging the initial proceedings were done in secret.

Eric Lycan, a private attorney representing the state, argued that the state had to seize the domain names in a civil proceeding because the state could not physically locate owners of the offshore online gambling sites.

The only secret, Lycan said, is who owns the online gambling sites.

Lycan compared the state's attempted seizure to a drug case, where authorities go after boats or cars that are used to transport drugs.

Lycan has also questioned whether lawyers representing various online industry groups have the legal standing to defend the case in court, since they have not proved that their clients own the domain names.

Gov. Steve Beshear has pushed to shut down the gambling sites, saying they undermine horse racing by creating untaxed competition. The sites also make it easier to launder money and lack protections to ensure that people actually receive their winnings.

It's not clear when the state Supreme Court will rule, but the case has been closely watched by many in the gambling industry.

While Kentucky's legal battle continues, Congress is debating whether to repeal the 2006 Unlawful Internet Gambling Enforcement Act. U.S. Rep. Barney Frank, D-Mass., has proposed doing away with the act, legalizing the industry and taxing it.

By some estimates, online gambling is a $20 billion-a-year industry, much of which goes untaxed.

The 141 domain names have continued to operate as the case has been litigated.

John Pappas, executive director of the Poker Players Alliance, an online gambling group, said in a written statement that the case has broad ramifications beyond online gambling.

"This case is about more than playing poker online — it's about protecting Internet freedom and the individual rights of Kentucky residents," he said. "If the Commonwealth is truly interested in protecting consumers, it would put its energy in licensing and regulating online poker — which would also bring in millions in revenue."

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