US faces challenge to online gambling ban

A legal case brought against the US before the World Trade Organization could undermine the United States’ decision last year to broadly enforce laws against online poker and many other forms of gambling over the internet, according to a New York Times article today.

The tiny island nation of Antigua and Barbuda has successfully charged that the U.S.’ ban on online gambling violates Antigua’s rights as a member of the WTO, after having been persuaded by American lawyer Mark E. Mendel to pursue the case.

The case is significant for technology start-ups. We’ve covered a number of companies experimenting with ways of providing legal gambling-like experiences online, most recently, Ujogo.

Online gambling could soon become a far more lucrative path to revenue for many companies, especially those developing virtual worlds or other online games. Second Life, for example, banned gambling in its virtual world last month due to pressure from the FBI.

Mendel, on behalf of, Antigua seeks compensation to the tune of $3.4 billion in damages — scores of online casinos are based in the tiny island nation, and comprise its second-largest employment base.

To comply with the ruling, the Bush administration and Congress would either need to reverse itself and permit Americans to place bets online with offshore casinos or else make all forms of internet gambling illegal, a legal expert told the New York Times. The US currently allows many other forms of online gambling, such as betting on horse races.

It is asking for even more drastic forms of compensation if the US fails to comply. It wants to give Antiguans permission, among other things, to violate US intellectual property laws — allowing its citizens to distribute pirated copies of copyrighted American software, music, and movies.

During world trade negotiations in the early 1990’s, the US government agreed to not impose special restrictions on online gambling.

However, the US government more recently decided to enforce other, previous laws against online gambling, through the Unlawful Internet Gambling Enforcement Act of 2006.

The stated rationale for the Act was to protect US citizens against the moral vice of gambling, although legal experts have been busy pointing out this country’s potential economic gain from keeping gambling in-house.

When the case was introduced in 2003, many decision-makers in Washington dismissed the idea that the WTO could claim jurisdiction over the US’s own policies towards gambling.

A WTO panel ruled against the US in 2004 and its appellate court upheld that decision in 2005; in March, the ruling was upheld for a second time, declaring the US out of compliance with its rules.

The implications could be even broader, which the article says has the WTO just as scared:

[T]he dispute, as the trade organization’s first to deal with the Internet, is likely to serve as a major precedent in establishing rules of commerce in an online age and dealing with such prickly issues as China’s attempts to block online content it finds offensive.