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Late in September, the state of Kentucky issued a court order to the registrars for 141 domain names, announcing that the domains would be seized by the state. The justification? These domain names were allegedly associated with websites that promoted or directly engaged in online gambling.

Online gambling was effectively made illegal in the U.S. with 2006’s Unlawful Internet Gambling Enforcement Act (UIGEA). However, there’s been a great deal of argument over just how far that law goes. Lawmakers are sparring over the exact wording of the bill, which effectively places the burden of enforcement on the shoulders of financial institutions, rather than the government itself. In any case, Kentucky’s action goes considerably beyond the scope of the law.

Furthermore, most of the seized domain names — which included large, well-known companies such as PokerStars and Bodog — are based in the United Kingdom, with no assets or formal operations in North America.

The case has generated a huge amount of controversy. However, it’s understandable if you haven’t heard about it, considering the relative lack of attention it’s received in the mainstream media. Considering it’s essentially a case of international property seizure (a situation with enormous implications) it’s so far garnered a surprisingly low profile from the American press — with the following exception. Last week, the Washington Post finally weighed in with its overview of the situation:

An effort by the state of Kentucky to seize more than 140 online gambling Web site names is raising novel legal questions about the physical location of digital property and the reach of local and regional governments on the global Internet.

Last month, a Kentucky circuit court judge granted a request by the governor to have 141 Web site names used by online gaming operations transferred to the state’s control. The action was filed by a Chicago law firm on behalf of Gov. Steve Beshear (D), who was elected in part on the strength of a promise to bring casino gambling to the state.

The domains include some of the most popular online gaming sites on the Internet, including UltimateBet.com and FullTiltPoker.com. According to the state, residents spend roughly $170 million each year gambling at online casinos, potentially taxable revenue that might otherwise have been spent at the state’s own gaming operations, which include regulated betting on horse racing and bingo.
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Attorneys for the state convinced Judge Thomas Wingate that the gambling Web site names were tangible “gambling devices” that could be seized under Kentucky’s gaming statutes. Wingate’s order compels the entities that manage the registration of those domains, known as domain registrars, to transfer control over the Web sites to the state.

Jennifer Brislin, spokeswoman for the Kentucky justice department, said the state is seeking unspecified damages from the casinos, but that its primary goal is to force the Web sites to block Kentucky residents from visiting them. She said the majority of the registrars affected by the judge’s order had “locked” the domains in question to prevent them from being transferred to another registrar pending the outcome of the case.

“We think it creates a tremendous disadvantage for our legitimate, licensed and taxed gaming interests, and there are some damages that are due to the commonwealth as a result,” Brislin said.

Opponents of the decision say the Kentucky has no legal authority to seize the casino Web site names, as neither the individuals who registered the Web sites nor the registrars themselves are physically located there. All of the online casinos are operated outside of the United States. Many online gaming companies are lobbying on Capitol Hill to be legalized, regulated and taxed in the United States, which would allow them to market to U.S. consumers.

Bret Fausett, a domain name expert and attorney with the Los Angeles law firm Adorno, Yoss, Alvarado & Smith, notes that Kentucky’s gaming regulations were written long before the advent of the commercial Internet, and make no mention of virtual casinos.

“This is a little bit like if the Home Shopping TV network was accused of fraud, and Kentucky decided to seize the show’s cameras and set even though HSN’s real location is nowhere near the state,” Fausett said.

What do you think? Is Kentucky overstepping its jurisdiction here, or is this action justified in light of UIGEA? Do you think a state can legitimately seize international property, or is this a mistake that’s only going to hurt America’s international trade? Weigh in and let us know.

View the state’s original court order, including a complete list of all the seized domain names, here.