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The booming world of online gambling has dealt lawyers a messy hand of legal challenges, spawning a host of lawsuits that target an industry poised to make nearly $10 billion this year-up 40% from last year. In California, a group of lawyers has filed a class action against a dozen search engines, including Yahoo! and Google, for allegedly running ads that lead players to online gaming sites. The suit seeks to hold the search engines responsible for gambling losses. In Louisiana, an online gambling portal called Casino City is pursuing a freedom of speech lawsuit against the U.S. Department of Justice, claiming that online gaming ads are protected by the First Amendment. In Nevada and Virginia, cybercasinos have sparked several patent and trademark infringement lawsuits, including gambling software developers suing over patent rights and Las Vegas hotels suing over copyright issues. And on the legislative side, three states-North Dakota, Illinois and Georgia-are considering legislation that would legalize online gaming activity and allow them to generate millions through taxes and fees. This has some lawyers shaking their heads. “I think it’s a big problem for the people who are addicted to gambling,” said Reed Kathrein of Lerach Coughlin Stoia Geller Rudman & Robbins, which is handling the class action against the search engines. Cisneros v. Yahoo, No. CGC 04433518 (San Francisco Co., Calif., Super. Ct.). “If we could, we would go after the gambling sites themselves,” he said. Kathrein, a partner in San Diego-based Lerach Coughlin’s San Francisco office, noted that most online casino operators are overseas and difficult to track down. He said one of his partners is considering going after the casinos, but for now they are concentrating on the search engines, which can be sued under a California law that bans advertising of unregulated gambling, he said. “How else are you going to get to the casinos unless we get to the people who are supporting them,” Kathrein said. “We got to looking at it and realized that the first place that people go is the search engines to find [gambling]. And if you just type in the word poker, casino, blackjack-up comes all kinds of stuff.” Kathrein, who represents two plaintiffs, a gambler and a nongambler, said that to shut the door to online gambling, you have to close the search engine’s door to potential gamblers. “At the heart of the complaint is stopping the advertising of Internet gambling,” Kathrein said. “It’s really addictive. And it’s really bad.” That may be so, argue attorneys for search engines Yahoo and Google, but pursuing the search engines in an effort to curb online gambling is “ludicrous,” and holding them accountable for a gambler’s habit and losses is “repugnant.” “They’re just going after the middleman,” said Google’s lawyer, Al Gidari, a partner at Seattle’s Perkins Coie. “Our ads certainly didn’t pry [the plaintiff] to the gambling table,” Gidari said. “He was there long before the Internet and long before Google . . . .These plaintiffs’ lawyers ought to be hiring lawyers in Antigua and going after the casinos.” Kathrein notes that most of the defendants, including Google and Yahoo, have signed declarations agreeing to stop running online gaming ads. He said the issue now is whether or not they have any financial responsibility to the people who gambled, whether the court should enter an order declaring what they did is illegal and prohibit them from doing it in the future. A hearing in the case is set for April 21. “We obviously don’t think anything we did was illegal,” said Yahoo’s lawyer, Thomas Laffey, a partner at San Francisco’s Folger Levin & Kahn. Laffey disputed the notion that a search engine could be held accountable for a gambler’s habit. He likened the situation to a newspaper that runs an ad for a local bar: If a reader goes to that bar, gets drunk, then commits a crime, do you hold the paper accountable? “I don’t think so,” Laffey said. “I think, ultimately, it’s kind of a shaky slope to say that search engines are responsible for the choices people make about what to do with their time.” Gidari echoed that sentiment, saying that “the individual is accountable to themselves. They shouldn’t have gambled. We’re not their insurer. To link their proclivity to gamble to a search result is just unbelievable.” Crucial legal question Over the last decade, online gambling revenues have increased dramatically, from $30 million in 1996 to nearly $10 billion in 2005, according to Christian Capital Advisors, a New York-based research firm that studies the gambling industry. And as the industry continues to grow, lawyers will continue to argue over a key sticking point: Is Internet gambling really illegal in the United States? The U.S. Department of Justice says that all forms of online gambling are illegal under existing federal laws, primarily the 1961 Wire Act, which prohibits making bets over phone lines. But lawyers representing the online gaming industry disagree, saying that the federal Wire Act is limited to sports-related gambling activities, and does not apply to casino-style games like poker and blackjack. “The Wire Act is too weak and ambivalent,” said Chicago attorney Cory Aronovitz of the Casino Law Group in Chicago, who represents online gaming entities and gambling software developers. Aronovitz, who also teaches an Internet gambling course at the John Marshall Law School in Chicago, noted that there are only six states with laws that prohibit Internet gambling: Illinois, Louisiana, Nevada, South Dakota, Oregon and Michigan. Aronovitz said that Congress has tried many times to pass legislation banning Internet gambling, but nothing has passed. Meanwhile, the Department of Justice has come under fire recently for allegedly misusing the federal Wire Act to intimidate companies from running online gambling ads. That allegation was raised in a lawsuit filed by online gaming portal Casino City Inc., which sued the Justice Department claiming a First Amendment right to advertise online casinos and sportsbooks. Casino City v. U.S. Dept. of Justice, No. 04-557-B-M3 (M.D. La.). The suit, filed last August in a federal court in Louisiana, alleged that the Justice Department waged an intimidation campaign when, in June 2003, it sent letters to Web sites, broadcasters and newspaper associations, warning them that accepting ads from Internet gambling operators is illegal, and that they could face prosecution for “aiding and abetting” illegal online gambling activities. The Department of Justice also sent out subpoenas seeking detailed information on the purchase and placement of ads for online casinos and sportsbooks. “There’s this chilling effect where you got this letter that goes out to everybody that says, ‘You’re aiding or abetting. Censor yourself or face prosecution,’ ” said Patrick O’Brien, a partner in Greenberg Traurig’s Fort Lauderdale, Fla., office who is one of several lawyers representing Casino City. Applying pressure Justice Department spokesman Michael Kulstad defended the government’s letter, saying: “It was our attempt to be as gentle as we could. We were letting them know that accepting advertising from an Internet gambling firm is against the law and it could be used in an aiding and abetting statute.” He went on to say, “A lot of that pressure has worked.” On Feb. 17, a judge dismissed Casino City’s suit, mainly on technical grounds, stating that the plaintiffs lacked standing to bring the suit because the government never sent Casino City a letter or served it with a subpoena. The judge went on to say that online gambling ads don’t deserve First Amendment protection because such ads involve illegal activities-in this case, online gambling. The plaintiffs are considering an appeal. “We don’t like those little remarks in there that the judge threw out,” said O’Brien, who has advised Casino City to continue running the ads. “I said to Casino City that running these ads is not aiding and abetting . . . .You’re running adds for a flat fee. You’re no different than a newspaper . . . .We think we have a right to advertise.” O’Brien also argued that despite what the government says, online gambling is legal in the United States, citing the 5th U.S. Circuit Court of Appeals decision in In re MasterCard International, 132 F. Supp. 2d 468 (E.D. La. 2001). In that case, the court held that the Wire Act “clearly requires that the object of the gambling be a sporting event or contest.” However, other courts have interpreted the Wire Act differently and applied it to casino-type gambling rather than just sports betting. In 2000, a New York judge sentenced Jay Cohen to 21 months in prison and fined him $5,000 after a jury convicted him of operating an illegal offshore Internet sports gambling operation in Antigua. Cohen was convicted of conspiracy and substantive violations under the Wire Act. The 2d Circuit upheld the decision in U.S. v. Cohen, 260 F.3d 68 (2d Cir. 2001). Meanwhile, the Wire Act has also come under international scrutiny. In March 2004, the World Trade Organization ruled that the U.S. policy prohibiting Internet gambling violates international trade law. The ruling stems from a complaint filed in 2003 by the Caribbean nation of Antigua-a popular haven for online gambling operators-which asserted that it was losing millions because of the U.S. ban on Internet gambling. The Bush administration is appealing the WTO’s ruling. Playing IP detective California attorney Gary Hecker of the Los Angeles IP boutique the Hecker Law Group knows firsthand how difficult it is to go after the overseas gambling operators themselves. He’s had to track down some big players as part of his trademark infringement lawsuit on behalf of the Las Vegas Sands hotel company, which is suing three Internet-based casinos for using the name Sands in their domain names or on their Web sites. The suit aims to stop the groups from using the name Sands, and seeks to obtain damages for the use of the name. Las Vegas Sands v. WWTS, No. CV-S-04-0276PMP (D. Nev.). It’s been almost four years since the actions were initiated, he said, and “I’m still not sure we have found them all.” So far, he’s learned that one Web site is owned by The Red Group in South Africa. Another operator is in Antigua. And the principals of a third Web site are from Antigua. “It’s difficult to identify the owners and the relationships between the parties who deal in these kinds of Web sites,” Hecker said. “They create a web of entities and relationships that appears to be a purposeful effort to obfuscate who is behind the Web site, and in my view, an effort to insulate themselves from legal responsibility.” Part of his strategy in the patent suits will be to determine from where the gambling is being initiated, who is controlling the money, where it is going, who’s getting paid, where the money is maintained and just how much money is involved. Hecker hasn’t met any of the operators yet, he said. “But somebody has to show up. They have to appear for discovery.”

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